Annual Report o October 31, 1999
CITIFUNDS (SM)
Large Cap Growth Portfolio
[GRAPHIC]
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INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
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LARGE CAP STOCKS
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TABLE OF CONTENTS
Letter to Our Shareholders 1
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Portfolio Environment and Outlook 2
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Fund Facts 4
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Portfolio Highlights 5
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Fund Performance 6
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CITIFUNDS LARGE CAP GROWTH PORTFOLIO
Statement of Assets and Liabilities 7
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Statement of Operations 8
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Statement of Changes in Net Assets 9
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Financial Highlights 10
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Notes to Financial Statements 12
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Independent Auditors' Report 15
LARGE CAP GROWTH PORTFOLIO
Portfolio of Investments 16
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Statement of Assets and Liabilities 18
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Statement of Operations 18
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Statement of Changes in Net Assets 19
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Financial Highlights 19
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Notes to Financial Statements 20
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Independent Auditors' Report 23
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<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
Large cap stocks as measured by the Standard & Poor's 500 Index were
extremely volatile during the 12-month reporting period ended October 31, 1999,
initially recovering from the losses experienced in the international currency
and credit crisis that began in the summer of 1998 and, later in the period,
reacting to higher interest rates. Economic conditions during the reporting
period were characterized generally by strong growth in the United States and
overseas, which led to higher U.S. interest rates toward the end of the
reporting period. In this environment, strong performance was limited primarily
to a handful of technology and Internet stocks.
Throughout the one-year period, the CitiFunds' investment adviser, Citibank,
N.A., continued to manage CitiFundsSM Large Cap Growth Portfolio with the goal
of achieving its investment objective of providing long-term capital growth.
This report reviews the Portfolio's investment activities and performance
during the reporting period, and provides a summary of Citibank's perspective on
and outlook for the U.S. stock market. On behalf of the Board of Trustees, I
want to thank you for your continued confidence and participation.
Sincerely,
/s/ Philip W. Coolidge
- ----------------------------
Philip W. Coolidge
President
November 15, 1999
1
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PORTFOLIO ENVIRONMENT AND OUTLOOK
AFTER SEVERAL YEARS OF LEADING THE OVERALL U.S. STOCK MARKET TO HISTORIC
HIGHS, LARGE CAP STOCKS CONTINUED TO GENERATE COMPETITIVE RETURNS DURING THE
REPORTING PERIOD. While the economic and market conditions that fueled the large
cap sector's rise have remained largely intact -- including strong economic
growth, low inflation, robust consumer spending and rising demand for U.S.
exports -- man investors have become concerned that inflationary pressures might
resurface. In fact, in an attempt to forestall a potential reacceleration of
inflation, the Federal Reserve Board (the "Fed") raised interest rates twice
during the summer of 1999.
These economic conditions stand in stark contrast to factors that prevailed
when the Portfolio's reporting period began. In November 1998, the Fed completed
a series of interest rate cuts that were intended to stimulate global economic
growth, which was threatened by the spread of an international currency and
credit crisis, and to help insulate the U.S. economy from the adverse effects of
a global economic slowdown. This accommodating strategy of the Fed and other
central banks was apparently effective. Many overseas economies began to recover
in 1999 and the U.S. economy continued to grow strongly.
IN THE OPINION OF MANAGEMENT, THE U.S. EQUITY MARKETS WERE CHARACTERIZED BY
HIGH LEVELS OF VOLATILITY DUE PRIMARILY TO CONCERNS REGARDING THE DIRECTION AND
MAGNITUDE OF INTEREST RATE CHANGES AND THE SUSTAINABILITY OF CORPORATE EARNINGS
GROWTH. This volatility reflected a dramatic shift in market sentiment as
investors turned their attention away from the large, well-known, high-quality
companies they had previously favored to more speculative investments. Investors
who sought short-term gains in an uncertain market gravitated toward Internet
companies that they believed had great future potential, but have yet to turn a
profit. Similarly, investors rediscovered cyclical stocks that had long been out
of favor, including manufacturers of basic materials such as chemicals, paper,
oil and gas. The strong rebound in cyclical stocks during the middle part of the
reporting period reflected expectations that their earnings would improve due to
stronger economic growth worldwide.
CITIFUNDS LARGE CAP GROWTH PORTFOLIO MAINTAINED ITS INVESTMENT FOCUS ON
LARGE, HIGH-QUALITY GROWTH COMPANIES. The Portfolio's management follows a
specific discipline which requires that a company have a track record of
profitability to be considered for purchase, and avoids speculative companies
without profits, which includes most Internet stocks. The Portfolio's management
believes that the stock appreciation experienced by companies that have no
current earnings may be short-lived and inherently risky. They prefer to focus
on fundamental analysis of individual companies in an effort to uncover
opportunities that are making profits today and are expected to perform well
over the long term.
Because of the Portfolio's high-quality, growth-oriented focus, management
made several strategic changes during the reporting period. During the second
and third quarters of 1999, management reduced its weightings in financial and
retail stocks as their relative earnings outlook diminished. During the
reporting period, management maintained core positions in certain financial
stocks such as Bank of New York, Fannie Mae, American Express Co. and retailers
such as Home Depot, Wal-Mart Stores Inc. and Kohl's Corp., all of which produced
attractive returns for the Portfolio. More-
2
<PAGE>
over, the Portfolio continued to hold few stocks of consumer nondurables
companies, such as producers of beverages and household items, in a competitive
marketplace in which brand differentiation was apparently not enough to justify
higher prices.
On the other hand, the managers increased the Portfolio's holdings in
technology companies, focusing on those companies that have been increasing
profitability by successfully meeting the need for an expanded Internet
infrastructure. Instead of investing in Internet companies that few people had
heard of a year ago, management established or increased positions during the
reporting period in well known technology leaders such as Cisco Systems Inc.,
Dell Computers Corp., IBM Corp., Sun Microsystems Inc. and Lucent Technologies
Inc.
The managers also increased the Portfolio's exposure to telecommunications
companies that they think should be prime beneficiaries of the growing need for
ways to transmit voice, video and data over telephone lines. Several of the
telecommunications companies held by the Portfolio are leading the industry's
consolidation phase, which helped boost the Portfolio's performance during the
reporting period.
GOING FORWARD, THE PORTFOLIO'S MANAGEMENT EXPECTS THE HIGH LEVEL OF MARKET
VOLATILITY TO CONTINUE THROUGH THE END OF 1999. Management also believes that
investor uncertainty regarding inflation, corporate earnings and interest rates
may be compounded by Y2K-related concerns as the end of 1999 approaches. Over
the long term, however, management believes that conditions remain positive for
the highest quality large cap companies in the growth sector to continue to
prosper. And while no guarantees can be made, management believes that when
prevailing uncertainty dissipates, investors should once again favor large,
well-established companies that are growing profits consistently and have the
ability to generate higher earnings in virtually all types of market conditions.
3
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FUND FACTS
FUND OBJECTIVE
Long-term capital growth; dividend income, if any, is incidental to this
investment objective.
INVESTMENT MANAGER, DIVIDENDS
Large Cap Growth Portfolio Paid semi-annually, if any
Citibank, N.A.
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
October 19, 1990 Distributed annually, if any
NET ASSETS AS OF 10/31/99 BENCHMARKS
Class A shares o Standard & Poor's Barra Growth Index*
$513.9 million o Lipper Growth Funds Average**
Class B shares
$28.3 million
* The Standard & Poor's 500 Index ("S&P 500") is an index of U.S. common stocks
and issued as a gauge of general U.S. stock market performance. The Standard
& Poor's Barra Growth Index represents the growth stocks in the S&P 500.
** The Lipper Growth Funds Average reflects the performance (excluding sales
charges) of mutual funds with similar objectives.
4
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PORTFOLIO HIGHLIGHTS
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TOP TEN EQUITY HOLDINGS AS OF OCTOBER 31, 1999
COMPANY, INDUSTRY % OF NET ASSETS
General Electric Co., Conglomerates 9.08%
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Microsoft Corp., Computer Software 6.63%
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Cisco Systems Inc., Computer & Telecommunications Equipment 4.91%
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Lucent Technology Inc., Computer & Telecommunications Equipment 4.52%
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Wal-Mart Stores Inc., Retail 4.43%
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Intel Corp., Semi-Conductors 4.28%
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International Business Machines Corp.,
Computer & Telecommunications Equipment 4.27%
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Merck & Co., Healthcare 4.03%
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Johnson & Johnson, Healthcare 3.59%
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Bristol-Myers Squibb Co., Healthcare 3.31%
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PORTFOLIO DIVERSIFICATION AS OF OCTOBER 31, 1999
[The following table represents a pie chart in the printed piece.]
Retail ......................................... 10%
*Short-Term .................................... 3%
Healthcare ..................................... 19%
Semi-Conductors ................................ 6%
Conglomerates .................................. 9%
Commercial Services ............................ 10%
Computer & Telecommunication Equipment ......... 20%
Computer Software .............................. 8%
Capital Goods/Pruducer Manufacturer ............ 3%
Consumer ....................................... 4%
Finance ........................................ 7%
Commercial Services ............................ 1%
*Includes cash and net other assets
5
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CITIFUNDS LARGE CAP GROWTH PORTFOLIO
FUND PERFORMANCE
TOTAL RETURNS
SINCE
ONE FIVE 10/19/90
ALL PERIODS ENDED OCTOBER 31, 1999 YEAR YEARS* (INCEPTION)*
================================================================================
CitiFunds Large Cap Growth Portfolio (Class A) 23.60% 22.25% 18.43%
without sales charge
Lipper Growth Funds Average 29.12% 20.91% 18.45%+
S&P Barra Growth Index 31.29% 30.14% 22.78%+
CitiFunds Large Cap Growth Portfolio (Class A)
with a maximum sales charge of 5.00% 17.42% 21.01% 17.76%
CitiFunds Large Cap Growth Portfolio (Class B)
without deferred sales charge -- -- 6.82%#**
Lipper Growth Funds Average -- -- 12.24%++**
S&P Barra Growth Index -- -- 14.27%++**
CitiFunds Large Cap Growth Portfolio (Class B)
with a maximum deferred sales charge of 5.00% -- -- 1.48%#**
* Average Annual Total Return
** Not Annualized
+ From 10/31/90
++ From 12/31/98
# Commencement of Operations 1/4/99
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made on inception date would have grown to
$43,830 with sales charge (as of 10/31/99). The graph shows how the Fund
compares to its benchmarks over the same period.
[The following table represents a line chart in the printed piece.]
CITIFUNDS
LARGE CAP LIPPER S&P BARRA
GROWTH GROWTH GROWTH
PORTFOLIO FUNDS INDEX
(CLASS A) AVERAGE (UNMANAGED)
--------- ------- -----------
10/19/90 10000
9354 10000 10000
9916 10660 10604
10007 11014 10941
10447 11690 11396
11220 12534 12280
11294 12938 12744
11053 12922 12720
11806 13456 13200
11137 12795 12649
11791 13430 13325
12456 13838 13754
12034 13712 13453
10/31/91 12308 13993 13617
11781 13435 13270
13083 14921 15140
12871 14997 14608
13189 15208 14695
12840 14755 14354
12893 14656 14506
12861 14738 14619
12451 14309 14316
12982 14821 14962
12621 14499 14790
12897 14724 14964
10/31/92 13226 15021 15189
13959 15769 15803
14077 16061 15907
14152 16259 15735
13950 16004 15608
14758 16447 15828
14524 15937 15098
14939 16516 15636
14794 16566 15503
14602 16526 15183
15262 17225 15737
15305 17401 15497
10/31/93 15518 17643 16073
15326 17297 16062
15804 17797 16174
16124 18322 16520
15868 18036 16225
15163 17187 15475
15441 17244 15545
15750 17310 15798
15298 16727 15462
15777 17169 15955
16169 17955 16807
15755 17632 16567
10/31/94 16049 17911 16953
15516 17239 16397
15740 17398 16680
15840 17520 17094
16397 18173 17761
16798 18678 18318
16976 19061 18794
17522 19616 19467
17799 20420 20213
18362 21372 20858
18182 21537 20789
18733 22157 21816
10/31/95 18789 21825 21990
19801 22585 22782
20076 22664 23039
20601 23149 23920
20729 23672 24137
21103 23883 24036
21266 24669 24505
21651 25323 25406
21890 24958 25724
20641 23475 24538
21195 24304 24901
22373 25682 26629
10/31/96 22385 25857 27207
23635 27398 29240
22854 27001 28564
24207 28381 30801
24044 27969 31059
22779 26646 29585
24720 27637 31972
25948 29682 33868
27217 30851 35585
29121 33446 38404
27164 32336 35850
28433 34134 37678
10/31/97 27944 32840 36544
29557 33392 38528
30026 33709 39002
30769 33867 40313
32933 36421 43114
34519 38024 45343
34552 38476 45724
33660 37349 44805
36401 38705 47995
35923 37807 47966
31265 31614 41725
33594 33489 44517
10/31/98 35460 35860 48247
37475 38037 51516
41192 41031 55434
43005 42709 58819
40941 40971 56512
42843 42766 59249
41407 44002 59134
39953 43192 57411
43023 45784 61519
41497 44584 59573
41982 44152 60399
41712 43410 59371
10/31/99 43830 45941 63477
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the other indices) and assumes all dividends and distributions from
the Fund are reinvested at Net Asset Value.
Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures "with sales charge" are provided in accordance with SEC
guidelines for comparative purposes for prospective investors, and reflect
voluntary fee waivers which may be terminated at any time. If the waivers were
not in place, the Fund's returns would have been lower. The maximum sales charge
of 5.00% went into effect on January 4, 1999. Investors may not invest directly
in an index.
6
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CITIFUNDS LARGE CAP GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
================================================================================
ASSETS:
Investment in Large Cap Growth Portfolio, at value (Note 1A) $544,058,608
Receivable for shares of beneficial interest sold 111,264
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Total assets 544,169,872
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LIABILITIES:
Payable for shares of beneficial interest repurchased 1,815,760
Accrued expenses and other liabilities 196,365
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Total liabilities 2,012,125
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NET ASSETS $542,157,747
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $370,290,301
Unrealized appreciation 81,294,504
Accumulated net realized gain 90,572,942
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Total $542,157,747
================================================================================
COMPUTATION OF
CLASS A SHARES:
Net Asset Value per share ($513,882,969/21,045,459
shares outstanding) $24.42
Offering Price per share ($24.42 / 0.95) $25.71*
================================================================================
CLASS B SHARES:
Net Asset Value per share and offering price
($28,274,778/1,164,419 shares outstanding) $24.28**
================================================================================
* Based upon single purchases of less than $25,000.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charges.
See notes to financial statements
7
<PAGE>
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
================================================================================
INVESTMENT INCOME (Note 1B):
Dividend Income from Large Cap Growth Portfolio $3,021,351
Interest Income from Large Cap Growth Portfolio 622,295
Allocated Expenses from Large Cap Growth Portfolio (3,445,541)
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$ 198,105
EXPENSES:
Management fees (Note 2) 1,551,631
Service fees Class A (Note 3) 1,249,253
Service fees Class B (Note 3) 175,091
Transfer agent fees 88,782
Shareholder reports 47,170
Legal fees 38,642
Registration fees 32,850
Custody and fund accounting fees 32,833
Audit fees 20,690
Trustees fees 19,540
Other 18,431
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Total expenses 3,274,913
Less aggregate amount waived by the Manager (Note 2) (1,158,931)
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Net expenses 2,115,982
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Net investment loss (1,917,877)
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NET REALIZED AND UNREALIZED GAIN FROM
LARGE CAP GROWTH PORTFOLIO:
Net realized gain 93,539,988
Unrealized appreciation 4,631,674
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Net realized and unrealized gain from
Large Cap Growth Portfolio 98,171,662
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NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $96,253,785
================================================================================
See notes to financial statements
8
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CITIFUNDS LARGE CAP GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED
OCTOBER 31,
---------------------------
1999 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment loss $(1,917,877) $ (332,222)
Net realized gain 93,539,988 34,918,080
Unrealized appreciation 4,631,674 31,323,892
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Net increase in net assets resulting
from operations 96,253,785 65,909,750
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (Class A) -- (138,253)
Net realized gain (Class A) (35,754,369) (50,358,634)
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Decrease in net assets from
distributions to shareholders (35,754,369) (50,496,887)
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TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
CLASS A
Net proceeds from sale of shares 171,779,784 107,344,145
Net asset value of shares issued to shareholders
from reinvestment of distributions 35,750,664 50,485,303
Cost of shares repurchased (131,507,869) (43,022,818)
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Total Class A 76,022,579 114,806,630
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CLASS B*
Net proceeds from sale of shares 31,598,337 --
Net asset value of shares issued to shareholders
from reinvestment of distributions -- --
Cost of shares repurchased (4,342,786) --
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Total Class B 27,255,551 --
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Net increase in net assets from transactions
in shares of beneficial interest 103,278,130 114,806,630
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NET INCREASE IN NET ASSETS 163,777,546 130,219,493
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NET ASSETS:
Beginning of period 378,380,201 248,160,708
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End of period (including overdistributed
and undistributed net investment income
of $0 and $0, respectively) $542,157,747 $378,380,201
================================================================================
* January 4, 1999 (Commencement of Operations) to October 31, 1999
See notes to financial statements
9
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CITIFUNDS LARGE CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------
TEN MONTHS
ENDED
OCTOBER 31,
YEAR ENDED OCTOBER 31, 1997 YEAR ENDED DECEMBER 31,
--------------------- --------------------------------
1999 1998 (Note 1F) 1996 1995 1994++
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
beginning of period $ 21.47 $ 21.14 $ 18.25 $ 17.20 $ 14.13 $ 14.80
- -------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment
income (loss) (0.079)+ (0.022) +0.031 0.122 0.211 0.173
Net realized and
unrealized gain (loss)
on investments 4.944 4.735 4.016 2.250 3.651 (0.245)
- -------------------------------------------------------------------------------------------------------
Total from operations 4.865 4.713 4.047 2.372 3.862 (0.072)
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.012) (0.030) (0.118) (0.210) (0.169)
Net realized gain on
investments (1.915) (4.371) (1.127) (1.204) (0.582) (0.429)
- -------------------------------------------------------------------------------------------------------
Total distributions (1.915) (4.383) (1.157) (1.322) (0.792) (0.598)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, end
of period $ 24.42 $ 21.47 $ 21.14 $ 18.25 $ 17.20 $ 14.13
=======================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $513,883 $378,380 $248,161 $228,954 $213,729 $183,975
Ratio of expenses to
average net assets(A) 1.05% 1.05% 1.05%* 1.05% 1.05% 1.05%
Ratio of net investment
income (loss) to
average net assets (0.34)% (0.11)% 0.18%* 0.67% 1.30% 1.15%
Portfolio turnover(B) -- -- -- -- -- 1.00%
Total return 23.60% 26.90% 22.27%** 13.84% 27.55% (0.41)%
Note: If Agents of the Fund for the periods indicated had not voluntarily waived
a portion of their fees and had expenses been limited to that required by
certain state securities laws the net investment income (loss) per share and the
ratios would have been as follows:
Net investment income
(loss) per share $(0.131)+ $(0.078)+ $(0.023) $0.067 $0.170 $0.136
RATIOS:
Expenses to average
net assets (A) 1.27% 1.32% 1.35%* 1.35% 1.30 1.29%
Net investment income
(loss) to average
net assets (0.56)% (0.38)% (0.12)%* 0.37% 1.05% 0.91%
=======================================================================================================
* Annualized.
** Not Annualized.
+ The per share amounts were computed using a monthly average number of shares
outstanding during the year.
(A) Includes the Fund's share of Large Cap Growth Portfolio allocated expenses
for the periods subsequent to May 1, 1994.
(B) Portfolio turnover represents the rate of portfolio activity for the period
while the Fund was making investments directly in securities. The portfolio
turnover rate for the period since the Fund transferred all of its
investable assets to the Portfolio is shown in the Portfolio's financial
statements which are included elsewhere in this report.
++ On May 1, 1994 the Fund began investing all of its investable assets in
Large Cap Growth Portfolio.
</TABLE>
10
<PAGE>
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS B
-----------------
JANUARY 4, 1999
(COMMENCEMENT
OF OPERATIONS) TO
OCTOBER 31, 1999
================================================================================
Net Asset Value,
beginning of period $22.73
- --------------------------------------------------------------------------------
Income From Operations:
Net investment loss (0.206)+
Net realized and unrealized
gain on investments 1.756
- --------------------------------------------------------------------------------
Total from operations 1.55
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income --
Net realized gain on
investments --
- --------------------------------------------------------------------------------
Total distributions --
- --------------------------------------------------------------------------------
Net Asset Value, end
of period $24.28
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $28,275
Ratio of expenses to
average net assets (A) 1.80%*
Ratio of net investment loss to average net assets (1.13)%*
Total return 6.82%**
Note: If Agents of the Fund for the periods indicated had not voluntarily waived
a portion of their fees and had expenses been limited to that required by
certain state securities laws the net investment loss per share and the ratios
would have been as follows:
Net investment loss per share $(0.258)+
RATIOS:
Expenses to average net assets (A) 2.02%*
Net investment loss to average net assets (1.35)%*
================================================================================
* Annualized.
** Not Annualized.
+ The per share amounts were computed using a monthly average number of shares
outstanding during the period. (A)-Includes the Fund's share of Large Cap
Growth Portfolio allocated expenses.
See notes to financial statements
11
<PAGE>
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Large Cap Growth Portfolio (the
"Fund") is a separate diversified series of CitiFunds Trust II (the "Trust"), a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company.
The Fund currently invests all of its investable assets in Large Cap Growth
Portfolio (the "Portfolio"), a management investment company for which Citibank,
N.A. ("Citibank") serves as Investment Manager. The value of such investment
reflects the Fund's proportionate interest (77.4% at October 31, 1999) in the
net assets of the Portfolio. CFBDS, Inc ("CFBDS"), acts as the Fund's
Sub-Administrator and Distributor.
The Fund offers Class A and Class B shares. The Fund commenced its public
offering of Class B shares on January 4, 1999. Class A shares have a front-end,
or initial, sales charge effective January 4, 1999. This sales charge may be
reduced or eliminated in certain circumstances. Class B shares have no front-end
sales charge, pay a higher ongoing distribution fee than Class A, and are
subject to a deferred sales charge if sold within five years of purchase. Class
B shares automatically convert into Class A shares after eight years. Expenses
of the Fund are borne pro-rata by the holders of each class of shares, except
that each class bears expenses unique to that class (including the Rule 12b-1
service and distribution fees applicable to such class), and votes as a class
only with respect to its own Rule 12b-1 plan. Shares of each class would receive
their pro-rata share of the net assets of the Fund if the Fund were liquidated.
Class A shares have lower expenses than Class B shares. For the period ended
October 31, 1999, CFBDS, acting as the distributor received $559,453 from sales
of Class A and $243 in deferred sales charges from redemptions of Class B
shares.
The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Fund are as
follows:
A. INVESTMENT VALUATION Valuation of securities by the Portfolio is discussed
in Note 1A of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report.
B. Investment Income The Fund earns income, net of Portfolio expenses, daily
based on its investment in the Portfolio. C. Federal Taxes The Fund's policy is
to comply with the provisions of the Internal Revenue Code applicable to
regulated investment companies and to distribute to shareholders all of its
taxable income, including any net realized gain on
12
<PAGE>
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
investment transactions. Accordingly, no provision for federal income or excise
tax is necessary.
D. EXPENSES The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with
respect to any two or more funds or series are allocated in proportion to the
average net assets of each fund, except when allocations of direct expenses to
each fund can otherwise be made fairly. Expenses directly attributable to a fund
are charged to that fund. The Fund's share of the Portfolio's expenses are
charged against and reduce the amount of the Fund's investment in the Portfolio.
E. DISTRIBUTIONS Distributions to shareholders are recorded on ex-dividend
date. The amount and character of income and net realized gains to be
distributed are determined in accordance with income tax rules and regulations,
which may differ from generally accepted accounting principles. These
differences are attributable to permanent book and tax accounting differences.
Reclassifications are made to the Fund's capital accounts to reflect income and
net realized gains available for distribution (or available capital loss
carryovers) under income tax rules and regulations. For the year ended October
31, 1999, the Fund reclassified $1,917,877 from accumulated net gains on
investments to accumulated net investment loss.
F. CHANGE IN FISCAL YEAR END During fiscal year 1997, the Fund changed its
fiscal year end from December 31 to October 31.
G. OTHER All the net investment income, realized and unrealized gain and loss
of the Portfolio is allocated pro rata, based on respective ownership interests,
among the Fund and the other investors in the Portfolio at the time of such
determination. Investment transactions are accounted for on the trade date
basis. Realized gains and losses are determined on the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the Fund's
business affairs, and has a Management Agreement with the Fund. Citibank also
provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. CFBDS acts as Sub-Administrator and performs certain
duties and receives compensation from Citibank as from time to time is agreed to
by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of Citicorp, which
in turn is a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was formed
as a result of the merger of Citicorp and Travelers Group, Inc. which was
completed on October 8, 1998.
The management fees paid to Citibank are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.30% of the Fund's average
daily net assets. The management fee amounted to $1,551,631 of which $1,158,931
was voluntarily waived for the year ended October 31, 1999.
The Trust pays no compensation directly to any Trustee or any other officer
who is affiliated with the Sub-Administrator, all of whom receive remuneration
for
13
<PAGE>
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
their services to the Trust from the Sub-Administrator or its affiliates.
3. SERVICE FEES The Fund maintains separate Service Plans for Class A and Class
B shares, which have been adopted in accordance with Rule 12b-1 under the 1940
Act. Under the Class A Service Plan, the Fund may pay monthly fees at an annual
rate not to exceed 0.25% of the average daily net assets represented by Class A
shares of the Fund. The Service fees for Class A shares amounted to $1,249,253
for the year ended October 31, 1999. Under the Class B Service Plan, the Fund
may pay a combined monthly distribution and service fee at an annual rate not to
exceed 1.00% of the average daily net assets represented by Class B shares of
the Fund. The Distribution fees for Class B shares amounted to $175,091 for the
year ended October 31, 1999. These fees may be used to make payments to the
Distributor for distribution services and to others as compensation for the sale
of shares of the applicable class of the Fund, for advertising, marketing or
other promotional activity, and for preparation, printing and distribution of
prospectuses, statements of additional information and reports for recipients
other than regulators and existing shareholders. The Fund may also make payments
to the Distributor and others for providing personal service or the maintenance
of shareholder accounts.
4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in
the Portfolio for the year ended October 31, 1999 aggregated $207,559,378 and
$137,911,637, respectively.
5. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional shares of beneficial
interest (without par value). Transactions in shares of beneficial interest were
as follows:
YEAR ENDED
OCTOBER 31,
--------------------------
1999 1998
================================================================================
CLASS A
Shares sold 7,419,389 5,093,051
Shares issued to shareholders from
reinvestment of distributions 1,619,142 2,873,381
Shares repurchased (5,618,300) (2,082,551)
- --------------------------------------------------------------------------------
Class A net increase 3,420,231 5,883,881
================================================================================
CLASS B*
Shares sold 1,349,188 --
Shares issued to shareholders from
reinvestment of distributions -- --
Shares repurchased (184,769) --
- --------------------------------------------------------------------------------
Class B net increase 1,164,419 --
================================================================================
* January 4, 1999 (Commencement of Operations) to October 31, 1999
14
<PAGE>
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE SHAREHOLDERS OF CITIFUNDS TRUST II (THE "TRUST"):
CITIFUNDS LARGE CAP GROWTH PORTFOLIO
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
CitiFunds Large Cap Growth Portfolio (the "Fund"), a series of CitiFunds Trust
II, at October 31, 1999, the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated in conformity with
accounting principles generally accepted in the United States. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned at
October 31, 1999 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 14, 1999
15
<PAGE>
LARGE CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.5%
- --------------------------------------------------------------------------------
CAPITAL GOODS/PRODUCER
MANUFACTURER -- 2.6%
- --------------------------------------------------------------------------------
Danaher Corp. 88,500 $ 4,275,656
Tyco International Ltd. 348,000 13,898,250
------------
18,173,906
------------
COMPUTER SOFTWARE -- 8.0%
- --------------------------------------------------------------------------------
Microsoft Corp.* 503,600 46,614,475
Oracle Corp.* 210,000 9,988,125
------------
56,602,600
------------
COMPUTER & TELECOMMUNICATIONS
EQUIPMENT -- 19.8%
- --------------------------------------------------------------------------------
Cisco Systems Inc.* 466,800 34,543,200
Dell Computer Corp.* 310,000 12,438,750
EMC Corp.* 89,600 6,540,800
International Business
Machines Corp. 305,600 30,063,400
Lexmark International
Group Inc.* 159,000 12,411,938
Lucent Technologies Inc. 494,600 31,778,050
Sun Microsystems Inc.* 75,000 7,935,937
Tellabs Inc.* 61,000 3,858,250
------------
139,570,325
------------
COMMERCIAL SERVICES -- 1.0%
- --------------------------------------------------------------------------------
Interpublic Group of
Companies Inc. 177,600 7,215,000
------------
COMMUNICATION SERVICES -- 10.0%
- --------------------------------------------------------------------------------
AT&T Corp. 300,000 14,025,000
Bell Atlantic Corp. 240,000 15,585,000
BellSouth Corp. 278,000 12,510,000
GTE Corp. 152,000 11,400,000
SBC Communications 327,000 16,656,562
------------
70,176,562
------------
CONGLOMERATES -- 9.1%
- --------------------------------------------------------------------------------
General Electric Co. 470,900 63,836,381
------------
CONSUMER NON-DURABLES -- 3.3%
- --------------------------------------------------------------------------------
Procter & Gamble Co. 221,180 23,196,252
------------
CONSUMER SERVICES -- 1.0%
- --------------------------------------------------------------------------------
Carnival Corp. 153,000 6,808,500
------------
FINANCE -- 6.8%
- --------------------------------------------------------------------------------
American Express Co. 78,000 12,012,000
Bank of New York 232,100 9,719,187
Federal Home Loan
Mortgage Corp. 101,000 5,460,313
Federal National
Mortgage Association 148,000 10,471,000
MBNA Corp. 360,000 9,945,000
------------
47,607,500
------------
HEALTHCARE -- 19.4%
- --------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 303,000 23,274,188
Eli Lilly & Co. 80,600 5,551,325
Johnson & Johnson 240,700 25,213,325
Merck & Co. 355,800 28,308,338
Pfizer Inc. 528,000 20,856,000
Schering-Plough Corp. 394,200 19,512,900
Warner Lambert Co. 173,000 13,807,563
------------
136,523,639
------------
RETAIL -- 10.4%
- --------------------------------------------------------------------------------
Bed Bath & Beyond Inc.* 232,100 7,731,831
Family Dollar Stores Inc. 151,000 3,114,375
Home Depot 198,000 14,949,000
Kohl's Corp.* 101,000 7,556,062
Ross Stores Inc. 432,000 8,910,000
Wal-Mart Stores Inc. 550,200 31,189,463
------------
73,450,731
------------
SEMI-CONDUCTORS -- 6.1%
- --------------------------------------------------------------------------------
Altera Corp.* 115,000 5,591,875
Intel Corp. 388,600 30,092,212
Linear Technologies Corp. 53,000 3,706,688
Maxim Integrated
Products Inc.* 45,000 3,552,188
------------
42,942,963
------------
TOTAL COMMON STOCKS
(Identified Cost
$552,122,440) 686,104,359
------------
16
<PAGE>
LARGE CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER VALUE
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS
AT AMORTIZED COST--0.7%
- --------------------------------------------------------------------------------
First Union National Bank
5.30% due 11/1/99 proceeds
at maturity $4,639,048
(collateralized by $4,670,000
Federal Home Loan Mortgage
6.44% due 8/11/01, valued at
$4,692,355) $ 4,637,000
------------
TOTAL INVESTMENTS
(Identified Cost
$556,759,440) 98.2% 690,741,359
OTHER ASSETS,
LESS LIABILITIES 1.8 12,558,852
----- ------------
NET ASSETS 100.0% $703,300,211
===== ============
* Non income producing securities
See notes to financial statements
17
<PAGE>
LARGE CAP GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $556,759,440) $690,741,359
Cash 260
Receivable for investments sold 33,234,834
Dividends and interest receivable 504,659
- --------------------------------------------------------------------------------
Total assets 724,481,112
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 20,347,609
Payable to affiliates-Management fees (Note 2) 355,599
Accrued expenses and other liabilities 477,693
- --------------------------------------------------------------------------------
Total liabilities 21,180,901
- --------------------------------------------------------------------------------
NET ASSETS $703,300,211
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $703,300,211
================================================================================
LARGE CAP GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income $ 4,240,877
Interest income 884,047
- --------------------------------------------------------------------------------
Total investment income $ 5,124,924
EXPENSES:
Management fees (Note 2) 4,351,046
Custody and fund accounting fees 391,912
Legal fees 43,653
Audit fees 28,303
Trustees fees 13,557
Other 10,055
- --------------------------------------------------------------------------------
Total expenses 4,838,526
- --------------------------------------------------------------------------------
Net investment income 286,398
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions 130,508,299
Unrealized appreciation of investments 16,171,002
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments 146,679,301
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $146,965,699
================================================================================
See notes to financial statements
18
<PAGE>
LARGE CAP GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED
OCTOBER 31,
---------------------------------
1999 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment income $ 286,398 $ 1,225,038
Net realized gain on investment transactions 130,508,299 61,181,518
Unrealized appreciation of investments 16,171,002 55,065,852
- --------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 146,965,699 117,472,408
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions (Note 1) 301,816,661 369,790,712
Value of withdrawals (356,386,616) (201,271,389)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital transactions (54,569,955) 168,519,323
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS: 92,395,744 285,991,731
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 610,904,467 324,912,736
- --------------------------------------------------------------------------------
End of period $703,300,211 $610,904,467
================================================================================
LARGE CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TEN MONTHS MAY 1, 1994
YEAR ENDED ENDED YEAR ENDED (COMMENCEMENT
OCTOBER 31, OCTOBER 31, DECEMBER 31, OF OPERATIONS)
------------------ 1997 -------------- TO DECEMBER 31,
1999 1998 (NOTE 1F) 1996 1995 1994
==========================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
<S> <C> <C> <C> <C> <C> <C>
(000's omitted) $703,300 $610,904 $324,913 $288,562 $246,158 $186,685
Ratio of expenses to
average net assets 0.67% 0.71% 0.60%* 0.60% 0.60% 0.60%*
Ratio of net investment income
to average net assets 0.04% 0.23% 0.62%* 1.10% 1.73% 1.81%*
Portfolio turnover 108% 53% 103% 90% 67% 35%
==========================================================================================================
* Annualized
See notes to financial statements
</TABLE>
19
<PAGE>
LARGE CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES Large Cap Growth Portfolio (the "Portfolio"),
a separate series of The Premium Portfolios (the "Trust"), is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Declaration of Trust permits the Trustees to issue
beneficial interests in the Portfolio. The Investment Manager of the Portfolio
is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd.
("SFG") acts as the Portfolio's Sub-Administrator.
On November 1, 1997 CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect
Folio 400 and CitiSelect Folio 500 each transferred a portion of their
investable assets in the amount of $12,183,616, $34,554,616, $38,508,816 and
$16,346,503 including $1,107,028, $3,598,984, $4,092,260 and $1,450,560,
respectively, of unrealized appreciation, to the Portfolio in exchange for an
interest in the Portfolio. The total investable assets are included in the year
ended October 31, 1998 "Proceeds from contributions" in the Statement of Changes
in Net Assets.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. INVESTMENT SECURITY VALUATIONS Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less), are valued on the basis
of valuations furnished by pricing services approved by the Board of Trustees
which take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, and other market data, without exclusive reliance on quoted prices or
exchange or over-the-counter prices. Short-term obligations, maturing in sixty
days or less, are valued at amortized cost, which constitutes fair value as
determined by the Trustees. Securities, if any, for which there are no such
valuations or quotations are valued at fair value as determined in good faith by
or under guidelines established by the Trustees.
B. INCOME Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for U.S. federal income tax purposes. Dividend income is recorded
on the ex-dividend date.
C. U.S. FEDERAL INCOME TAXES The Portfolio is considered a partnership
under the U.S. Internal Revenue Code. Accordingly, no provision for federal
income taxes is necessary.
20
<PAGE>
LARGE CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
D. REPURCHASE AGREEMENTS It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
E. EXPENSES The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
F. CHANGE IN FISCAL YEAR END During the fiscal year 1997, the Portfolio
changed its fiscal year end from December 31 to October 31.
G. OTHER Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub-Administrator and performs certain duties and receives compensation from
Citibank as from time to time are agreed to by Citibank and SFG. Citibank is a
wholly-owned subsidiary of Citicorp, which in turn is a wholly-owned subsidiary
of Citigroup Inc. Citigroup Inc. was formed as a result of the merger of
Citicorp and Travelers Group, Inc., which was completed on October 8, 1998.
The management fees paid to Citibank amounted to $4,351,046 for the year
ended October 31, 1999. Management fees are computed at the annual rate of 0.60%
of the Portfolio's average daily net assets.
The Trust pays no compensation directly to any Trustee or any other officer
who is affiliated with the Sub-Administrator, all of whom receive remuneration
for their services to the Trust from the Sub-Administrator or its affiliates.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $827,781,024 and $883,658,791,
respectively, for the year ended October 31, 1999.
21
<PAGE>
LARGE CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at October 31, 1999,
as computed on a federal income tax basis, are as follows:
Aggregate cost $556,927,539
================================================================================
Gross unrealized appreciation $142,805,313
Gross unrealized depreciation (8,991,493)
- --------------------------------------------------------------------------------
Net unrealized appreciation $133,813,820
================================================================================
5. LINE OF CREDIT The Portfolio, along with various other Portfolios in the
CitiFunds Family, entered into an ongoing agreement with a bank which allows the
Portfolios collectively to borrow up to $75 million for temporary or emergency
purposes. Interest on the borrowings, if any, is charged to the specific
portfolio executing the borrowing at the base rate of the bank. The line of
credit requires a quarterly payment of a commitment fee based on the average
daily unused portion of the line of credit. For the year ended October 31, 1999,
the commitment fee allocated to the Portfolio was $2,010. Since the line of
credit was established, there have been no borrowings.
22
<PAGE>
LARGE CAP GROWTH PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE "TRUST"): WITH
RESPECT TO ITS SERIES, LARGE CAP GROWTH PORTFOLIO:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Large Cap Growth Portfolio (the "Portfolio"), a
series of The Premium Portfolios, as at October 31, 1999, and the related
statements of operations and of changes in net assets and the financial
highlights for the periods indicated. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned as
at October 31, 1999 by correspondence with the custodian and brokers, provides a
reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at October 31, 1999, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated, in accordance with U.S. generally accepted
accounting principles.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 1999
23
<PAGE>
This page intentionally left blank.
<PAGE>
TRUSTEES AND OFFICERS
Philip W. Coolidge*, President
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
C. Oscar Morong Jr.
E. Kirby Warren
William S. Woods Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR
INVESTMENT MANAGER
(of Large Cap Growth Portfolio)
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
DISTRIBUTOR
CFBDS, Inc.
21 Milk Street, 5th Floor,
Boston, MA 02109
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street, Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
THE CITIFUNDS FAMILY
LARGE CAP STOCKS
o CitiFunds Growth & Income Portfolio
o CitiFunds Large Cap Growth Portfolio
SMALL CAP STOCKS
o CitiFunds Small Cap Value Portfolio
o CitiFunds Small Cap Growth Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
o CitiFunds International Growth Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds Intermediate Income Portfolio
o CitiFunds National Tax Free Income Portfolio
o CitiFunds California Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
o CitiFunds New York Tax Free Reserves
This report is prepared for the information of shareholders of CitiFunds Growth
& Income Portfolio. It is authorized for distribution to prospective investors
only when preceded or accompanied by an effective prospectus of CitiFunds Growth
& Income Portfolio.
For more information about any of the CitiFunds listed above, ask for a
prospectus (except for CitiFunds Growth & Income Portfolio which preceded or
accompanies this report) containing more complete information, including all
sales charges (if any), fees and expenses. Please read the prospectus carefully
before you invest or send money.
Although each money market fund seeks to maintain the value of your investment
at $1.00 per share, it is possible to lose money by investing in the funds.
Mutual fund shares are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency.
CitiFunds are made available by CFBDS, Inc. as distributor. For more information
contact your Service Agent or call 1-800-625-4554.
(C)1999 Citicorp [LOGO] Printed on recycled paper CFA/LCG/1099
<PAGE>
Annual Report o October 31, 1999
CITIFUNDS(SM)
Small Cap Growth
Portfolio
- --------------------------------------------------------------------------------
INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
- --------------------------------------------------------------------------------
SMALL CAP STOCKS
<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
- --------------------------------------------------------------------------------
Portfolio Environment and Outlook 2
- --------------------------------------------------------------------------------
Fund Facts 4
- --------------------------------------------------------------------------------
Portfolio Highlights 5
- --------------------------------------------------------------------------------
Fund Performance 6
- --------------------------------------------------------------------------------
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
Statement of Assets and Liabilities 7
- --------------------------------------------------------------------------------
Statement of Operations 8
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets 9
- --------------------------------------------------------------------------------
Financial Highlights 10
- --------------------------------------------------------------------------------
Notes to Financial Statements 12
- --------------------------------------------------------------------------------
Independent Auditors' Report 15
- --------------------------------------------------------------------------------
SMALL CAP GROWTH PORTFOLIO
Portfolio of Investments 16
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities 18
- --------------------------------------------------------------------------------
Statement of Operations 18
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets 19
- --------------------------------------------------------------------------------
Financial Highlights 19
- --------------------------------------------------------------------------------
Notes to Financial Statements 20
- --------------------------------------------------------------------------------
Independent Auditors' Report 23
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
While the small cap stock market produced returns that lagged large cap
stocks as measured by the Russell 2000 Index during the 12-month reporting
period ended October 31, 1999, small cap stocks in the growth sector
outperformed the overall market. Economic conditions during the reporting period
were characterized by moderate growth in the United States and mixed economic
conditions overseas, leading to higher U.S. interest rates toward the end of the
reporting period. In this environment, some small company technology and
Internet stocks provided attractive returns.
Throughout the reporting period, the CitiFunds' investment adviser,
Citibank, N.A., continued to manage CitiFundssm Small Cap Growth Portfolio with
the goal of achieving its investment objective of providing long-term capital
growth.
This report reviews the Fund's investment activities and performance during
the reporting period, and provides a summary of Citibank's perspective on and
outlook for the small capitalization sector of the U.S. stock market. On behalf
of the Board of Trustees, I want to thank you for your continued confidence and
participation.
Sincerely,
/s/ Philip W. Coolidge
- ----------------------
Philip W. Coolidge
President
November 15, 1999
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
IN THE OPINION OF MANAGEMENT, THE 12-MONTH REPORTING PERIOD ENDED OCTOBER
31, 1999 REPRESENTED A NARROW MARKETPLACE FOR SMALL CAPITALIZATION COMPANIES.
SMALL CAP GROWTH STOCKS OUTPERFORMED THEIR VALUE-ORIENTED COUNTERPARTS, DUE
LARGELY TO THE TECHNOLOGY AND TELECOMMUNICATIONS AREAS. FOR THE ONE YEAR PERIOD,
THE FUND'S CLASS A SHARES RETURNED A COMPETITIVE 26.42%. The overall small cap
market, as represented by the Russell 2000 Index, increased 14.87% relative to
the small growth cap stock segment which produced a return of 29.28%, as
represented by the Russell 2000 Growth Index, for the same time period. (Value
investing consists of identifying securities of companies that are believed to
be undervalued but have good longer term business prospects. Growth investing
consists of investing in companies with historically strong and relatively
predictable earnings growth rates.)
BECAUSE OF THE PAST UNDERPERFORMANCE OF THE OVERALL SMALL CAP MARKET,
PARTICULARLY DURING CALENDAR YEAR 1998, THE DIFFERENCES IN VALUATIONS BETWEEN
LARGE CAP AND SMALL CAP STOCKS WIDENED TO NEAR HISTORICAL PROPORTIONS EARLIER IN
THE YEAR. Despite the relative attractiveness of the prices of small cap stocks
relative to historical valuation measures, investors have not been focusing
their attention on this out-of-favor sector of the stock market. As an
indication of this valuation discrepancy, many large cap companies have
continually been using their historically valued shares as currency to acquire
small cap companies or to take a minority interest in their businesses.
While prevailing economic conditions have been generally positive for
stocks--including moderate domestic economic growth, low inflation, robust
consumer spending and rising demand for U.S. exports (particularly technology
and telecommunications)--many investors became concerned that inflationary
pressures might resurface in the near future. In fact, in an attempt to
forestall a potential reacceleration of inflation, the Federal Reserve Board
(the "Fed") raised interest rates twice during the summer of 1999.
These economic conditions stand in stark contrast to the market conditions
that prevailed when the reporting period began. In November 1998, the Fed
completed a series of interest-rate cuts that were intended to stimulate global
economic growth, which was threatened by the spread of an international currency
and credit crisis, and to help insulate the U.S. economy from the adverse
effects of a global economic slowdown. The Fed's strategy was apparently
effective because many overseas economies began to recover in 1999 and the U.S.
economy continued to grow strongly.
THE EQUITY MARKETS WERE CHARACTERIZED BY HIGH LEVELS OF VOLATILITY GIVEN THE
INTERNATIONAL ECONOMIC UNCERTAINTIES, PARTICULARLY IN ASIA AND RUSSIA. As a
result, many investors favored investments with very high quality and placed a
premium on liquidity. (Liquidity is the ability to buy or sell an asset quickly
and in large volume without substantially affecting the asset's price.) Small
cap stocks are inherently less liquid given the size of the issuer and higher
levels of insider stock ownership (i.e., stock held by venture capitalists,
founders, management and/or employees, etc.). In addition, most publicly-traded
small cap companies
2
<PAGE>
are newer, less seasoned businesses that have not proven themselves to the
investment community. When investors selectively began to increase their risk in
the beginning of 1999, they gravitated to the Internet companies that they
believe have great future potential and would potentially offer significantly
higher short-term performance.
CitiFunds(SM) Small Cap Growth Portfolio maintained its focus on small
capitalization growth companies that meet its stated investment criteria. Since
the start of 1999, the Fund's management has allocated a portion of its assets
to Internet stocks, focusing on those companies believed to have attractive
growth potential and definable valuation parameters. This led management away
from many of the more speculative securities that most investors associate with
the Internet. Instead of investing in Internet companies that few investors had
heard of a year ago, management established or increased positions in small
technology and telecommunications companies that provide infrastructure for the
Internet. This area includes telecommunications companies that the manager
believes should be prime beneficiaries of the growing demand for the
transmission of voice, video and data over telephone lines at faster speeds.
Many of these companies have profitable business prospects.
One of the areas that contributed most to the Fund's performance during the
reporting period was wireless telecommunications stocks since demand for
wireless services remains very strong. The Fund also benefited from the solid
performance of energy services companies due to higher oil prices, and consumer
services companies, including media-related businesses that are taking advantage
of changes in U.S. demographic mix.
On the other hand, management reduced the Fund's holdings in financial
services stocks during the first half of 1999 when it became apparent that
interest rates could rise and consolidation would slow within the financial
sector due to Year 2000 concerns.
Looking forward, the Fund's management expects heightened market volatility
to continue through 1999 and into 2000. While no guarantees can be given,
management believes that conditions remain positive for many small cap growth
companies over the long-term. In addition, the portfolio management team
anticipates that investors will once again recognize that small cap growth
companies embody the entrepreneurial forces driving the U.S. economy. These
burgeoning enterprises provide an excellent opportunity to participate in some
of the fastest growing sectors of the U.S. economy and the potential to realize
competitive performance results for investors.
3
<PAGE>
FUND FACTS
FUND OBJECTIVE
Long-term capital growth; dividend income, if any, is incidental to this
investment objective
INVESTMENT MANAGER, DIVIDENDS
Small Cap Growth Portfolio Paid semi-annually, if any
Citibank, N.A.
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
June 21, 1995 Distributed annually, if any
NET ASSETS AS OF 10/31/99 BENCHMARKS
Class A shares o Lipper Small Cap Funds Average*
$23.8 million o Russell 2000(R)Growth Index**
Class B shares
$737,188
* The Lipper Small Cap Funds Average reflects the performance (excluding sales
charges) of mutual funds with similar objectives.
** The Russell 2000(R) Growth Index measures the performance of those Russell
2000 companies with higher price to book ratios and higher forecasted growth
values.
4
<PAGE>
PORTFOLIO HIGHLIGHTS
================================================================================
TOP TEN EQUITY HOLDINGS AS OF OCTOBER 31, 1999
COMPANY, INDUSTRY % OF NET ASSETS
Mercury Interactive Corp., Technology Services 3.32%
- --------------------------------------------------------------------------------
Macromedia, Inc., Electronics/Technical Services 2.57%
- --------------------------------------------------------------------------------
Roberts Pharmaceutical Corp., Health Services/Technology 2.49%
- --------------------------------------------------------------------------------
Pinnacle Holdings, Inc., Electronics/Technical Services 2.46%
- --------------------------------------------------------------------------------
Westwood One, Inc., Consumer Services 2.17%
- --------------------------------------------------------------------------------
Voicestream Wireless Corp., Electronics/Technical Services 2.16%
- --------------------------------------------------------------------------------
Legato Systems, Inc., Technology Services 2.14%
- --------------------------------------------------------------------------------
R & B Falcon Corp., Energy Minerals 2.13%
- --------------------------------------------------------------------------------
Catalina Marketing Corp., Commercial Services 2.08%
- --------------------------------------------------------------------------------
Network Appliance, Inc., Electronics/Technical Services 1.91%
- --------------------------------------------------------------------------------
PORTFOLIO DIVERSIFICATION AS OF OCTOBER 31, 1999
[PIE CHART OMITTED]
*Short-Term 3%
Commercial Services 9%
Technology Services 12%
Electronics/Technical Services 24%
Consumer 12%
Finance 8%
Health Services/Technology 13%
Retail 5%
Process Industries 5%
Energy Minerals 5%
Transportation 3%
Industrial Services 1%
*Includes cash and net other assets.
5
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
FUND PERFORMANCE
TOTAL RETURNS
SINCE
ONE JUNE 21, 1995
ALL PERIODS ENDED OCTOBER 31, 1999 YEAR (INCEPTION)*
================================================================================
CitiFunds Small Cap Growth Portfolio (Class A)
without sales charge 26.42% 22.94%
Lipper Small Cap Funds Average 25.06% 14.48%+
Russell 2000 Growth Index 29.28% 11.14%+
CitiFunds Small Cap Growth Portfolio (Class A)
with a maximum sales charge of 5.00% 20.09% 21.51%
CitiFunds Small Cap Growth Portfolio (Class B)
without deferred sales charge -- 12.45%#**
Lipper Small Cap Funds Average -- 8.25%++**
Russell 2000 Growth Index -- 10.02%++**
CitiFunds Small Cap Growth Portfolio (Class B)
with a maximum deferred sales charge of 5 00% -- 6.83%#**
================================================================================
* Average Annual Total Return
** Not Annualized
+ From 6/30/95
++ From 12/31/98
# Commencement of Operations 1/4/99
GROWTH OF A $10,000 INVESTMENT
[The following table represents a chart in the printed material]
<TABLE>
<CAPTION>
DATE CITIFUNDS SMALL CAP GROWTH LIPPER SMALL CAP FUNDS AVG. RUSSELL 2000 GROWTH INDEX
---- -------------------------- --------------------------- -------------------------
<S> <C> <C> <C>
6/21/95 $ 9,500
6/30/95 $ 9,548 $10,000 $10,000
7/31/95 $10,422 $10,748 $10,779
8/31/95 $11,058 $10,925 $10,912
9/30/95 $11,400 $11,188 $11,136
10/31/95 $11,381 $10,812 $10,588
11/30/95 $12,873 $11,212 $11,055
12/31/95 $13,754 $11,375 $11,301
1/31/96 $14,099 $11,295 $11,207
2/29/96 $15,483 $11,763 $11,718
3/31/96 $16,270 $12,077 $11,950
4/30/96 $18,239 $12,980 $12,868
5/31/96 $19,555 $13,547 $13,528
6/30/96 $18,965 $13,023 $12,649
7/31/96 $16,790 $11,903 $11,104
8/31/96 $18,877 $12,624 $11,926
9/30/96 $19,676 $13,265 $12,540
10/31/96 $19,072 $13,000 $12,000
11/30/96 $19,423 $13,378 $12,333
12/31/96 $18,952 $13,582 $12,574
1/31/97 $19,764 $13,929 $12,878
2/28/97 $18,619 $13,333 $12,100
3/31/97 $17,495 $12,634 $11,246
4/30/97 $16,975 $12,538 $11,115
5/31/97 $19,473 $14,062 $12,786
6/30/97 $20,534 $14,804 $13,220
7/31/97 $21,234 $15,727 $13,896
8/31/97 $21,547 $16,014 $14,313
9/30/97 $23,396 $17,228 $15,456
10/31/97 $22,184 $16,463 $14,527
11/30/97 $21,986 $16,221 $14,181
12/31/97 $21,949 $16,358 $14,189
1/31/98 $20,967 $16,076 $14,001
2/28/98 $23,456 $17,327 $15,237
3/31/98 $24,405 $18,133 $15,875
4/30/98 $24,503 $18,281 $15,972
5/31/98 $22,593 $17,250 $14,811
6/30/98 $24,263 $17,387 $14,962
7/31/98 $22,211 $16,136 $13,713
8/31/98 $16,667 $12,908 $10,548
9/30/98 $18,173 $14,074 $11,617
10/31/98 $18,511 $14,633 $12,224
11/30/98 $19,690 $15,580 $13,172
12/31/98 $20,978 $16,722 $14,365
1/31/99 $21,054 $16,785 $15,011
2/28/99 $18,981 $15,414 $13,637
3/31/99 $19,417 $15,713 $14,123
4/30/99 $19,886 $16,720 $15,370
5/31/99 $19,876 $17,041 $15,394
6/30/99 $21,229 $18,175 $16,206
7/31/99 $21,491 $18,046 $15,705
8/31/99 $21,556 $17,566 $15,117
9/30/99 $22,364 $17,627 $15,409
10/31/99 $23,401 $17,983 $15,804
</TABLE>
A $10,000 investment in the Fund made on inception date would have grown to
$23,401 with sales charge (as of 10/31/99). The graph shows how the Fund
compares to its benchmarks over the same period
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the other indices) and assumes all dividends and distributions from
the Fund are reinvested at Net Asset Value.
Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures "with sales charge" are provided in accordance with SEC
guidelines for comparative purposes for prospective investors and reflect
certain voluntary fee waivers which may be terminated at any time. If the
waivers were not in place, the fund's returns would have been lower. The maximum
sales charge of 5.00% went into effect on January 4, 1999. Investors may not
invest directly in an index.
6
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
================================================================================
ASSETS:
Investment in Small Cap Growth Portfolio, at value (Note 1A) $24,514,437
Receivable from the Sub-Administrator (Note 6) 125,819
- --------------------------------------------------------------------------------
Total assets 24,640,256
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 49,876
Accrued expenses and other liabilities 59,384
- --------------------------------------------------------------------------------
Total liabilities 109,260
- --------------------------------------------------------------------------------
NET ASSETS $24,530,996
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $17,435,777
Unrealized appreciation 5,444,948
Accumulated net realized gain 1,650,271
- --------------------------------------------------------------------------------
Total $24,530,996
================================================================================
COMPUTATION OF
CLASS A SHARES:
Net Asset Value per share ($23,793,808/1,109,970 shares outstanding) $21.44
Offering Price per share ($21.44 / 0.95) $22.57*
================================================================================
CLASS B SHARES:
Net Asset Value per share and offering price
($737,188/34,598 shares outstanding) $21.31**
================================================================================
* Based upon single purchases of less than $25,000.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements
7
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
================================================================================
INVESTMENT INCOME (Note 1B):
Dividend Income from Small Cap Growth Portfolio
(net of foreign withholding tax of $502) $ 57,365
Interest Income from Small Cap Growth Portfolio 29,915
Allocated Expenses from Small Cap Growth Portfolio (232,721)
- --------------------------------------------------------------------------------
$(145,441)
EXPENSES:
Management fees (Note 2) 94,556
Service fees Class A (Note 3) 66,445
Service fees Class B (Note 3) 4,379
Transfer agent fees 56,942
Legal fees 38,182
Custody and fund accounting fees 26,298
Audit fees 26,195
Shareholder reports 20,003
Trustees fees 10,656
Other 11,987
- --------------------------------------------------------------------------------
Total expenses 355,643
Less expenses assumed by the Sub-Administrator
(Note 6) (125,819)
Less aggregate amount waived by the Manager (Note 2) (94,556)
- --------------------------------------------------------------------------------
Net expenses 135,268
- --------------------------------------------------------------------------------
Net investment loss (280,709)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN FROM
SMALL CAP GROWTH PORTFOLIO:
Net realized gain 3,177,000
Unrealized appreciation 3,137,565
- --------------------------------------------------------------------------------
Net realized and unrealized gain from
Small Cap Growth Portfolio 6,314,565
- --------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $6,033,856
================================================================================
See notes to financial statements
8
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1999 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment loss $ (280,709) $ (263,943)
Net realized gain (loss) 3,177,000 (1,484,882)
Unrealized appreciation (depreciation) 3,137,565 (3,811,810)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 6,033,856 (5,560,635)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain (Class A) -- (1,049,618)
- --------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
CLASS A
Net proceeds from sale of shares 8,184,015 15,634,929
Net asset value of shares issued to
shareholders from reinvestment
of distributions -- 1,020,162
Cost of shares repurchased (18,128,031) (8,041,832)
- --------------------------------------------------------------------------------
Total Class A (9,944,016) 8,613,259
- --------------------------------------------------------------------------------
CLASS B*
Net proceeds from sale of shares 710,202 --
Net asset value of shares issued to
shareholders from reinvestment
of distributions -- --
Cost of shares repurchased (71,357) --
- --------------------------------------------------------------------------------
Total Class B 638,845 --
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from transactions in shares of
beneficial interest (9,305,171) 8,613,259
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (3,271,315) 2,003,006
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 27,802,311 25,799,305
- --------------------------------------------------------------------------------
End of period (undistributed
net investment income of $0 and
$0, respectively) $ 24,530,996 $ 27,802,311
================================================================================
* January 4, 1999 (Commencement of Operations) to October 31, 1999.
See notes to financial statements
9
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------
TEN MONTHS JUNE 21, 1995
YEAR ENDED ENDED (COMMENCEMENT
OCTOBER 31, OCTOBER 31, YEAR ENDED OF OPERATIONS)
-------------------- 1997 DECEMBER 31, TO DECEMBER 31,
1999 1998 (Note 1F) 1996 1995
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning
of period $ 16.96 $ 21.24 $ 18.21 $ 14.32 $ 10.00
- ---------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income (loss) (0.196)+ (0.193)+ (0.138)+ (0.016) 0.050
Net realized and
unrealized gain (loss) 4.676 (3.224) 3.236 5.407 4.420
- ---------------------------------------------------------------------------------------------------------------
Total from operations 4.480 (3.417) 3.098 5.391 4.470
- ---------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- -- (0.050)
Net realized gain -- (0.863) (0.068) (1.501) (0.100)
- ---------------------------------------------------------------------------------------------------------------
Total distributions -- (0.863) (0.068) (1.501) (0.150)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $ 21.44 $ 16.96 $ 21.24 $ 18.21 $ 14.32
===============================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $23,794 $27,802 $25,799 $24,311 $ 5,148
Ratio of expenses to average
net assets (A) 1.35% 1.35% 1.35%* 0.88% 0.00%*
Ratio of net investment income
(loss) to average net assets (1.03)% (0.98)% (0.87)%* (0.13)% 1.21%*
Total return 26.42% (16.56)% 17.05%** 37.80% 44.78%**
Note: If Agents of the Fund and Agents of Small Cap Growth Portfolio had not voluntarily waived a portion of
their fees and assumed Fund expenses for the periods indicated, and had expenses been limited to that required
by certain state securities laws for the period ended December 31, 1995, the net investment loss per share and
the ratios would have been as follows:
Net investment loss per share $(0.351)+ $(0.319)+ $(0.252)+ $(0.133) $(0.288)
RATIOS:
Expenses to average
net assets (A) 2.16% 1.99% 2.06%* 1.83% 2.50%*
Net investment loss to
average net assets (1.84)% (1.62)% (1.58)%* (1.08)% (1.29)%*
===============================================================================================================
</TABLE>
* Annualized
** Not Annualized
+ The per share amounts were computed using a monthly average number of shares
outstanding during the period.
(A) Includes the Fund's share of Small Cap Growth Portfolio allocated expenses
for the periods indicated.
See notes to financial statements
10
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS B
-----------------
JANUARY 4, 1999
(COMMENCEMENT
OF OPERATIONS) TO
OCTOBER 31, 1999
================================================================================
Net Asset Value, beginning
of period $ 18.95
- --------------------------------------------------------------------------------
Income From Operations:
Net investment loss (0.265)+
Net realized and unrealized gain 2.625
- --------------------------------------------------------------------------------
Total from operations 2.36
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income --
Net realized gain --
- --------------------------------------------------------------------------------
Total distributions --
- --------------------------------------------------------------------------------
Net Asset Value, end of period $ 21.31
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $737,188
Ratio of expenses to average net assets (A) 2.10%*
Ratio of net investment loss to average net assets (1.77)%*
Total return 12.45%**
Note: If Agents of the Fund and Agents of Small Cap Growth Portfolio had not
voluntarily waived a portion of their fees, assumed Fund expenses for the
periods indicated, the net investment loss per share and the ratios would have
been as follows:
Net investment loss per share $ (0.420)+
RATIOS:
Expenses to average net assets (A) 2.91%*
Net investment loss to average net assets (2.58)%*
================================================================================
* Annualized
** Not Annualized
(A) Includes the Fund's share of Small Cap Growth Portfolio allocated expenses
for the periods indicated.
+ The per share amounts were computed using a monthly average number of shares
outstanding during the period.
See notes to financial statements
11
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Small Cap Growth Portfolio, (the
"Fund") is a separate diversified series of CitiFunds Trust II (the "Trust"), a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company.
The Fund invests all of its investable assets in Small Cap Growth Portfolio (the
"Portfolio"), a management investment company for which Citibank, N.A.
("Citibank") serves as Investment Manager. The value of such investment reflects
the Fund's proportionate interest (25.3% at October 31, 1999) in the net assets
of the Portfolio. CFBDS, Inc. ("CFBDS") acts as the Fund's Sub-Administrator and
Distributor.
The Fund offers Class A and Class B shares. The Fund commenced its public
offering of Class B shares on January 4, 1999. Class A shares have a front-end,
or initial, sales charge effective January 4, 1999. This sales charge may be
reduced or eliminated in certain circumstances. Class B shares have no front-end
sales charge, pay a higher ongoing distribution fee than Class A shares, and are
subject to a deferred sales charge if sold within five years of purchase. Class
B shares automatically convert into Class A shares after eight years. Expenses
of the Fund are borne pro-rata by the holders of each class of shares, except
that each class bears expenses unique to that class (including the Rule 12b-1
service and distribution fees applicable to such class), and votes as a class
only with respect to its own Rule 12b-1 plan. Shares of each class would receive
their pro-rata share of the net assets of the Fund, if the Fund were liquidated.
Class A shares have lower expenses than Class B shares. For the period ended
October 31, 1999, CFBDS, acting as the distributor, received net commissions
paid by investors $15,831 from sales of Class A and $85 in deferred sales
charges from redemptions of Class B shares.
The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Fund are
as follows:
A. INVESTMENT VALUATION Valuation of securities by the Portfolio is
discussed in Note 1A of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. INVESTMENT INCOME The Fund earns income, net of Portfolio expenses,
daily based on its investment in the Portfolio.
C. FEDERAL TAXES The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investment transactions. Accordingly, no provision for federal income or
excise tax is necessary. At October 31, 1999, the Fund, for federal income tax
12
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
purposes, had a capital loss carryover of $1,682,701 which will expire on
October 31, 2006. Such capital loss carryover will reduce the Fund's taxable
income arising from future net realized gain on investment transactions, if any,
to the extent permitted by the Internal Revenue Code, and thus will reduce the
amount of the distributions to shareholders which would otherwise be necessary
to relieve the Fund of any liability for federal income or excise tax.
D. EXPENSES The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with
respect to any two or more funds or series are allocated in proportion to the
average net assets of each fund, except when allocations of direct expenses to
each fund can otherwise be made fairly. Expenses directly attributable to a fund
are charged to that fund. The Fund's share of the Portfolio's expenses are
charged against and reduce the amount of the Fund's investment in the Portfolio.
E. DISTRIBUTIONS Distributions to shareholders are recorded on the
ex-dividend date. The amount and character of income and net realized gains to
be distributed are determined in accordance with income tax rules and
regulations, which may differ from generally accepted accounting principles.
These differences are attributable to permanent book and tax accounting
differences. Reclassifications are made to the Fund's capital accounts to
reflect income and net realized gains available for distribution (or available
capital loss carryovers) under income tax rules and regulations. For the year
ended October 31, 1999, the Fund reclassified $280,709 to accumulated net
investment loss from paid in capital.
F. CHANGE IN FISCAL YEAR END During fiscal year 1997, the Fund changed its
fiscal year end from December 31 to October 31.
G. OTHER All the net investment income, realized and unrealized gain and
loss of the Portfolio are allocated pro rata, based on respective ownership
interests, among the Fund and the other investors in the Portfolio at the time
of such determination. Investment transactions are accounted for on the trade
date basis. Realized gains and losses are determined on the identified cost
basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the Funds'
business affairs, and has a Management Agreement with the Fund. Citibank also
provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. CFBDS acts as Sub-Administrator and performs certain
duties and receives compensation from Citibank as from time to time is agreed to
by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of Citicorp, which
in turn, is a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was
formed as a result of the merger of Citicorp and Travelers Group, Inc. which was
completed on October 8, 1998.
The management fees paid to Citibank, are accrued daily and payable
monthly. The management fee is computed at the annual rate of 0.35% of the
Funds' average daily net assets. The management fee amounted to $94,556 all of
which was voluntarily waived for the year ended October 31, 1999.
13
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTs (continued)
The Trust pays no compensation directly to any Trustee or any other officer
who is affiliated with the Sub-Administrator, all of whom receive remuneration
for their services to the Trust from the Sub-Administrator or its affiliates.
3. SERVICE FEES The Fund maintains separate Service Plans for Class A and
Class B shares, which have been adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940, as amended. Under the Class A Service Plan, the
Fund may pay monthly fees at an annual rate not to exceed 0.25% of the average
daily net assets represented by Class A shares of the Fund. The Service fees for
Class A shares amounted to $66,445 for the year ended October 31, 1999. Under
the Class B Service Plan, the Fund may pay a combined monthly distribution and
service fee at an annual rate not to exceed 1.00% of the average daily net
assets represented by Class B shares of the Fund. The Service fees for Class B
shares amounted to $4,379 for the year ended October 31, 1999. These fees may be
used to make payments to the Distributor for distribution services and to others
as compensation for the sale of shares of the applicable class of the Fund, for
advertising, marketing, or other promotional activity, and for preparation,
printing and distribution of prospectuses, statements of additional information
and reports for recipients other than regulators and existing shareholders. The
Fund also may make payments to the Distributor and others for providing personal
service or the maintenance of shareholder accounts.
4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment
in the Portfolio for the period aggregated $9,861,928 and $19,089,336,
respectively.
5. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the
Trustees to issue an unlimited number of full and fractional shares of
beneficial interest (without par value). Transactions in shares of beneficial
interest were as follows:
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
================================================================================
CLASS A
- --------------------------------------------------------------------------------
Shares sold 444,606 775,662
Shares issued to shareholders from
reinvestment of distributions -- 53,147
Shares repurchased (973,797) (404,041)
- --------------------------------------------------------------------------------
Class A net increase (decrease) (529,191) 424,768
================================================================================
CLASS B*
Shares sold 38,207 --
Shares issued to shareholders from
reinvestment of distributions -- --
Shares repurchased (3,609) --
- --------------------------------------------------------------------------------
Class B net increase 34,598
================================================================================
* January 4, 1999 (Commencement of Operations) to October 31, 1999.
6. ASSUMPTION OF EXPENSES CFBDS has voluntarily agreed to pay a portion of the
unwaived expenses of the Fund for the year ended October 31, 1999, which
amounted to $125,819.
14
<PAGE>
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE SHAREHOLDERS OF CITIFUNDS TRUST II (THE "TRUST"):
CITIFUNDS SMALL CAP GROWTH PORTFOLIO
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of CitiFunds Small Cap Growth Portfolio (the "Fund"), a series of
CitiFunds Trust II, at October 31, 1999, the results of its operations, the
changes in its net assets and the financial highlights for the periods indicated
in conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments owned at October 31, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 14, 1999
15
<PAGE>
SMALL CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.4%
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 9.1%
- --------------------------------------------------------------------------------
Applied Power, Inc. 19,000 $ 552,187
Catalina Marketing Corp.* 21,590 2,021,364
Cleco Corp. 21,000 695,625
Covad Communications Group, Inc.* 12,812 614,976
Lamar Advertising Co.* 29,235 1,578,690
Powertel, Inc.* 8,900 523,988
Profit Recovery Group International, Inc.* 32,576 1,341,724
Research in Motion Ltd.* 24,200 744,150
Source Information Management Co. *65,400 784,800
------------
8,857,504
------------
CONSUMER DURABLES -- 0.6%
- --------------------------------------------------------------------------------
Ethan Allen Interiors, Inc. 17,250 613,453
CONSUMER NON-DURABLES -- 1.5%
- --------------------------------------------------------------------------------
Beringer Wine Estate ~Holdings* 13,170 523,507
Papa John's International, Inc.* 23,900 893,263
------------
1,416,770
------------
CONSUMER SERVICES -- 10.3%
- --------------------------------------------------------------------------------
Emmis Communications ~Corp.* 7,300 526,512
Hispanic Broadcasting ~Corp.* 17,735 1,436,535
Houghton Mifflin Co. 13,100 555,112
Mail.Com, Inc.* 15,600 233,025
Premier Parks, Inc.* 44,556 1,289,339
SFX Entertainment, Inc.* 48,522 1,695,237
Saucony, Inc.* 32,447 555,655
Spanish Broadcasting Systems, Inc.* 18,115 482,312
Ticketmaster Online Citysearch* 8,400 189,000
Westwood One, Inc.* 45,628 2,104,592
Wiley John & Son 14,190 239,456
Young Broadcasting, Inc.* 14,500 672,438
------------
9,979,213
------------
ELECTRONICS/TECHNICAL SERVICES -- 24.2%
- --------------------------------------------------------------------------------
Activision, Inc.* 46,700 659,637
Amkor Technology, Inc.* 15,500 312,906
Ancor Communications, Inc.* 20,700 655,931
C Cube Microsystems, Inc.* 23,995 1,067,777
Crossroads Systems, Inc.* 364 25,889
DII Group, Inc.* 9,800 352,800
Hanover Compressor Co.* 20,700 765,900
Imclone System, Inc.* 11,000 306,625
Inprise Corp.* 111,200 413,525
Macromedia, Inc.* 38,685 2,492,765
Macrovision Corp.* 23,200 1,313,700
Microchip Technology, Inc.* 20,485 1,364,813
National Information Consortium, Inc.* 7,188 235,407
Network Appliance, Inc.* 25,050 1,853,700
Novellus Systems, Inc.* 22,695 1,758,863
PMC Sierra, Inc.* 10,800 1,017,900
Pinnacle Holdings, Inc.* 99,410 2,385,840
Powerwave Technologies, Inc.* 11,500 748,219
Varian, Inc.* 45,700 862,588
Voicestream Wireless Corp.* 21,250 2,098,438
Western Wireless Corp.* 27,850 1,472,569
Whittman Hart, Inc.* 34,150 1,312,641
------------
23,478,433
------------
ENERGY MINERALS -- 4.4%
- --------------------------------------------------------------------------------
Cal Dive International, Inc.* 22,200 746,475
Coflexip 21,500 851,937
Petroleum Geological Services* 44,135 645,474
R & B Falcon Corp.* 166,200 2,067,113
------------
4,310,999
------------
FINANCE -- 8.4%
- --------------------------------------------------------------------------------
Blanch Holdings, Inc. 6,900 446,775
Checkfree Holdings ~Corp.* 26,200 979,225
Chittenden Corp. 36,700 1,133,112
Cost Plus, Inc.* 24,250 885,125
Cullen Frost Bankers, Inc. 45,960 1,318,432
Peoples Heritage Financial Group 62,895 1,195,005
SEI Investments Co. 5,300 516,584
Telebanc Financial Corp.* 16,748 401,952
U.S. Trust Corp. 15,210 1,233,911
------------
8,110,121
------------
HEALTH SERVICES/TECHNOLOGY -- 12.5%
- --------------------------------------------------------------------------------
Alpharma, Inc. 16,700 587,631
Andrx Corp.* 18,200 869,050
Apria Healthcare Group, Inc.* 44,200 698,913
Barr Laboratories, Inc.* 33,460 1,014,256
16
<PAGE>
SMALL CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
HEALTH SERVICES/TECHNOLOGY (cont'd)
- --------------------------------------------------------------------------------
Gilead Sciences, Inc.* 5,800 $ 366,487
Idec Pharmaceuticals Corp.* 3,100 360,181
Idex Corp. 22,100 544,213
Leukosite, Inc.* 25,800 717,563
Medimmune, Inc.* 10,410 1,165,920
Medquist, Inc.* 22,620 723,840
Resmed, Inc.* 24,600 851,775
Roberts Pharmaceutical Corp.* 74,900 2,415,525
Ventana Medical Systems, Inc.* 23,377 469,001
Xomed Surgical Products, Inc.* 22,700 1,380,444
------------
12,164,799
------------
INDUSTRIAL SERVICES -- 1.2%
- --------------------------------------------------------------------------------
Gentex Corp.* 18,200 312,812
Harmonic, Inc.* 5,000 296,875
Waste Connections, Inc.* 34,455 531,899
------------
1,141,586
------------
PROCESS INDUSTRIES -- 5.1%
- --------------------------------------------------------------------------------
Alliant Techsystems, Inc.* 7,600 467,400
Aptargroup, Inc. 40,595 1,090,991
Mettler Toledo International, Inc.* 31,500 939,094
Micrel, Inc.* 29,600 1,609,500
Precision Drilling Corp.* 35,100 813,881
------------
4,920,866
------------
RETAIL -- 5.0%
- --------------------------------------------------------------------------------
Linens `n Things, Inc.* 28,410 1,129,298
O'Reilly Automotive, Inc.* 17,200 750,350
Sportsline USA, Inc.* 11,400 409,688
Tiffany & Co. 4,930 293,335
Zale Corp.* 23,400 979,875
Zany Brainy, Inc.* 100,500 1,243,688
------------
4,806,234
------------
TECHNOLOGY SERVICES -- 11.8%
- --------------------------------------------------------------------------------
Bisys Group, Inc.* 18,520 944,520
Dallas Semiconducter Corp. 14,000 824,250
Electronics For Imaging, Inc.* 24,580 990,881
Exodus Communications, Inc.* 14,400 1,238,400
High Speed Access Corp.* 12,206 321,170
Legato Systems, Inc.* 38,690 2,079,588
Mercury Interactive Corp.* 39,660 3,217,418
Microstrategy, Inc.* 5,200 502,450
National Instruments Corp.* 43,900 1,319,744
------------
11,438,421
------------
TRANSPORTATION -- 3.3%
- --------------------------------------------------------------------------------
CH Robinson Worldwide 28,700 970,419
CNF Transportation, Inc. 26,600 879,462
Eagle U.S.A. Airfreight, Inc.* 46,362 1,367,679
------------
3,217,560
------------
TOTAL INVESTMENTS
(Identified Cost
$70,098,484) 97.4% 94,455,959
OTHER ASSETS,
LESS LIABILITIES 2.6 2,495,359
----- ------------
NET ASSETS 100.0% $ 96,951,318
===== ============
* Non income producing securities
See notes to financial statements
17
<PAGE>
SMALL CAP GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $70,098,484) $94,455,959
Dividends receivable 5,152
Receivable for investments sold 4,223,804
- --------------------------------------------------------------------------------
Total assets 98,684,915
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 1,017,220
Payable to custodian 548,533
Payable to affiliates-- Management fees (Note 2) 61,359
Accrued expenses and other liabilities 106,485
- --------------------------------------------------------------------------------
Total liabilities 1,733,597
- --------------------------------------------------------------------------------
NET ASSETS $96,951,318
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $96,951,318
================================================================================
SMALL CAP GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
================================================================================
INVESTMENT INCOME:
Dividend income
(net of foreign withholding tax of $2,492) $ 311,420
Interest income 161,772
- --------------------------------------------------------------------------------
$ 473,192
EXPENSES:
Management fees (Note 2) 1,112,230
Custody and fund accounting fees 88,181
Legal fees 30,474
Audit fees 28,293
Trustees fees 6,034
Other 7,848
- --------------------------------------------------------------------------------
Total expenses 1,273,060
- --------------------------------------------------------------------------------
Net investment loss (799,868)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions 16,500,537
Unrealized appreciation of investments 18,520,946
- --------------------------------------------------------------------------------
Net realized and unrealized gain on investments 35,021,483
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $34,221,615
================================================================================
See notes to financial statements
18
<PAGE>
SMALL CAP GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED
OCTOBER 31,
-----------------------------
1999 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment loss $ (799,868) $ (1,122,896)
Net realized gain (loss) on investment
transactions 16,500,537 (9,691,394)
Unrealized appreciation (depreciation)
of investments 18,520,946 (27,795,086)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 34,221,615 (38,609,376)
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions (Note 1) 22,851,267 260,666,527
Value of withdrawals (154,792,807) (76,983,925)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital transactions (131,941,540) 183,682,602
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS: (97,719,925) 145,073,226
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 194,671,243 49,598,017
- --------------------------------------------------------------------------------
End of period $ 96,951,318 $194,671,243
================================================================================
SMALL CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TEN MONTHS JUNE 21, 1995
ENDED (COMMENCEMENT
YEAR ENDED OCTOBER 31, YEAR ENDED OF OPERATIONS)
OCTOBER 31, 1997 DECEMBER 31, TO DECEMBER 31,
1999 1998 (Note 1F) 1996 1995
============================================================================================================
<S> <C> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period
(000's omitted) $96,951 $194,671 $49,598 $47,142 $ 4,989
Ratio of expenses to average
net assets 0.86% 0.88% 0.85%* 0.61% 0.00%*
Ratio of net investment income
(loss) to average net assets (0.54)% (0.50)% (0.37)% *0.15% 1.22%*
Portfolio turnover 104% 51% 108% 89% 41%
Note: If Agents of the Portfolio had not voluntarily waived a portion of their fees and assumed Portfolio
expenses for the periods indicated and had expenses been limited to that required by certain state
securities laws for the period ended December 31, 1995, the ratios would have been as follows:
RATIOS:
Expenses to average net assets 0.86% 0.88% 1.04%* 1.17% 2.50%*
Net investment loss to average
net assets (0.54)% (0.50)% (0.56)%* (0.41)% (1.28)%*
============================================================================================================
</TABLE>
* Annualized
See notes to financial statements
19
<PAGE>
SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES Small Cap Growth Portfolio (the "Portfolio"),
a separate series of The Premium Portfolios (the "Portfolio Trust"), is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. The Declaration of Trust permits
the Trustees to issue beneficial interests in the Portfolio. The Investment
Manager of the Portfolio is Citibank N.A., ("Citibank"). Signature Financial
Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's Sub-Administrator.
On November 1, 1997 CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect
Folio 400 and CitiSelect Folio 500 each transferred a portion of their
investable assets in the amount of $15,439,632, $38,272,468, $75,166,816 and
$37,432,299 including $2,166,532, $5,841,516, $11,815,501 and $5,364,662,
respectively of unrealized appreciation to the Portfolio in exchange for an
interest in the Portfolio. The total investable assets, are included in the year
ended October 31, 1998 "Proceeds from contributions" in the Statement of Changes
in Net Assets.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. INVESTMENT SECURITY VALUATIONS Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less), are valued on the basis
of valuations furnished by pricing services approved by the Board of Trustees
which take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, and other market data, without exclusive reliance on quoted prices or
exchange or over-the-counter prices. Short-term obligations, maturing in sixty
days or less, are valued at amortized cost, which constitutes fair value as
determined by the Trustees. Securities, if any, for which there are no such
valuations or quotations are valued at fair value as determined in good faith by
or under guidelines established by the Trustees.
B. INCOME Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for U.S. federal income tax purposes. Dividend income is recorded
on the ex-dividend date.
20
<PAGE>
SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
C. U.S. FEDERAL INCOME TAXES The Portfolio is considered a partnership
under the U.S. Internal Revenue Code. Accordingly, no provision for federal
income taxes is necessary.
D. EXPENSES The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Portfolio Trust with respect to any two or more portfolios or series are
allocated in proportion to the average net assets of each portfolio, except when
allocations of direct expenses to each portfolio can otherwise be made fairly.
Expenses directly attributable to a portfolio are charged to that portfolio.
E. REPURCHASE AGREEMENTS It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
F. CHANGE IN FISCAL YEAR END During fiscal year 1997, the Portfolio changed
its fiscal year end from December 31 to October 31.
G. OTHER Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses are determined on
the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolios' business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub- Administrator and performs certain duties and receives compensation from
Citibank as from time to time are agreed to by Citibank and SFG. Citibank is a
wholly-owned subsidiary of Citicorp, which in turn, is a wholly-owned subsidiary
of Citigroup Inc. Citigroup Inc. was formed as a result of the merger of
Citicorp and Travelers Group, Inc. which was completed on October 8, 1998.
The management fees paid to Citibank, amounted to $1,112,230 for the year
ended October 31, 1999. The management fees are computed at the annual rate of
0.75% of the Portfolio's average daily net assets.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $148,954,353 and $277,231,568,
respectively, for the year ended October 31, 1999.
21
<PAGE>
SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at October 31, 1999,
as computed on a federal income tax basis, are as follows:
Aggregate cost $70,383,477
================================================================================
Gross unrealized appreciation $26,549,552
Gross unrealized depreciation (2,477,070)
- --------------------------------------------------------------------------------
Net unrealized appreciation $24,072,482
================================================================================
5. LINE OF CREDIT The Portfolio, along with various other Portfolios in the
CitiFunds family, entered into an ongoing agreement with a bank which allows the
Portfolios collectively to borrow up to $75 million for temporary or emergency
purposes. Interest on the borrowings, if any, is charged to the specific
portfolio executing the borrowing at the base rate of the bank. The line of
credit requires a quarterly payment of a commitment fee based on the average
daily unused portion of the line of credit. For the year ended October 31, 1999,
the commitment fee allocated to the Portfolio was $365. Since the line of credit
was established, there have been no borrowings.
22
<PAGE>
SMALL CAP GROWTH PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF THE PREMIUM PORTFOLIOS (THE "TRUST"), WITH
RESPECT TO ITS SERIES, SMALL CAP GROWTH PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Small Cap Growth Portfolio (the
"Portfolio"), a series of The Premium Portfolios, as at October 31, 1999, and
the related statements of operations and of changes in net assets and the
financial highlights for the periods indicated. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned as
at October 31, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at October 31, 1999, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated in accordance with U.S. generally accepted
accounting principles
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 1999
23
<PAGE>
This page intentionally left blank.
<PAGE>
TRUSTEES AND OFFICERS
Philip W. Coolidge*, PRESIDENT
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Heath B. McLendon**
C. Oscar Morong Jr
E. Kirby Warren
William S. Woods Jr
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
* AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR
** AFFILIATED PERSON OF INVESTMENT MANAGER
INVESTMENT MANAGER
(of Small Cap Growth Portfolio)
Citibank, N.A
153 East 53rd Street, New York, NY 10043
DISTRIBUTOR
CFBDS, Inc
21 Milk Street, 5th Floor
Boston, MA 02109
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street, Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
THE CITIFUNDS FAMILY
LARGE CAP STOCKS
o CitiFunds Growth & Income Portfolio
o CitiFunds Large Cap Growth Portfolio
SMALL CAP STOCKS
o CitiFunds Small Cap Value Portfolio
o CitiFunds Small Cap Growth Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
o CitiFunds International Growth Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds Intermediate Income Portfolio
o CitiFunds National Tax Free Income Portfolio
o CitiFunds California Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
o CitiFunds New York Tax Free Reserves
This report is prepared for the information of shareholders of CitiFunds Small
Cap Growth Portfolio. It is authorized for distribution to prospective investors
only when preceded or accompanied by an effective prospectus of CitiFunds Small
Cap Growth Portfolio.
For more information about any of the CitiFunds listed above, ask for a
prospectus (except for CitiFunds Small Cap Growth Portfolio, which preceded or
accompanies this report) containing more complete information, including all
sales charges (if any), fees and expenses. Please read the prospectus carefully
before you invest or send money.
Although each money market fund seeks to maintain the value of your investment
at $1.00 per share, it is possible to lose money by investing in the funds.
Mutual fund shares are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency.
CitiFunds are made available by CFBDS, Inc. as distributor. For more information
contact your Service Agent or call 1-800-625-4554.
(C)1999 Citicorp Printed on recycled paper CFA/SCG/1099
<PAGE>
ANNUAL REPORT o OCTOBER 31, 1999
CITIFUNDS (SM)
Small Cap Value Portfolio
- --------------------------------------------------------------------------------
INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
- --------------------------------------------------------------------------------
SMALL CAP STOCKS
<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
- --------------------------------------------------------------------------------
Portfolio Environment and Outlook 2
- --------------------------------------------------------------------------------
Fund Facts 4
- --------------------------------------------------------------------------------
Portfolio Highlights 5
- --------------------------------------------------------------------------------
Fund Performance 6
- --------------------------------------------------------------------------------
CITIFUNDS SMALL CAP VALUE PORTFOLIO
Statement of Assets and Liabilities 7
- --------------------------------------------------------------------------------
Statement of Operations 8
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets 9
- --------------------------------------------------------------------------------
Financial Highlights 10
- --------------------------------------------------------------------------------
Notes to Financial Statements 12
- --------------------------------------------------------------------------------
Independent Auditors' Report 15
- --------------------------------------------------------------------------------
SMALL CAP VALUE PORTFOLIO
Portfolio of Investments 16
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities 18
- --------------------------------------------------------------------------------
Statement of Operations 18
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets 19
- --------------------------------------------------------------------------------
Financial Highlights 19
- --------------------------------------------------------------------------------
Notes to Financial Statements 20
- --------------------------------------------------------------------------------
Independent Auditors' Report 23
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
Although the small cap stock market returned 14.87% as measured by the
Russell 2000 Index over the 12-month reporting period ended October 31, 1999,
value-oriented small cap stocks significantly underperformed the averages.
Economic conditions during the reporting period were characterized by
strong growth both in the United States and overseas, leading to higher U.S.
interest rates toward the end of the reporting period. In this environment,
small cap investors focused primarily on growth-oriented technology and Internet
stocks and, despite increasingly attractive valuations, stayed away from
value-oriented stocks.
Throughout the reporting period, the Fund's investment subadviser, Franklin
Advisory Services, LLC continued to manage CitiFundsSM Small Cap Value Portfolio
with the goal of achieving its investment objective of providing long-term
capital growth.
This report reviews the Fund's investment activities and performance during
the reporting period and provides a summary of the subadviser's perspective ~on
and outlook for the small cap sector of the U.S. stock market. On behalf~of the
Board of Trustees, I want to thank you for your continued confidence and
participation.
Sincerely,
/s/ Philip W. Coolidge
- ----------------------
Philip W. Coolidge
President
November 15, 1999
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
WHILE THE SMALL CAP SECTOR EXPERIENCED POSITIVE OVERALL RETURNS FOR THE
12-MONTH PERIOD ENDED OCTOBER 31, 1999, IT WAS A DIFFICULT TIME FOR SMALL CAP
VALUE STOCKS. (Value investing consists of identifying securities of companies
that are believed to be undervalued but have good longer term business
prospects. Growth investing consists of investing in companies with historically
strong and relatively predictable earnings growth rates.) Small cap value stocks
lagged the growth stock sector, which strongly benefited from continued
speculation in Internet companies.
With the exception of technology stocks, the differences in valuations
between large cap stocks and small cap stocks and between growth stocks and
value stocks have widened to historical proportions. In fact, at current
valuation levels, the Portfolio's management believes that many small cap value
stocks are attractively priced in relation to the overall market. However, many
investors have not yet shifted their attention to this neglected area of the
market.
In management's opinion, investors have largely ignored the small cap value
sector due to the focus on liquidity. (Liquidity is the ability to buy or sell a
security quickly and in large volume without substantially affecting its price.)
Shares of larger companies tend to be more liquid than shares of smaller
companies.
In addition, while prevailing economic conditions have generally been
positive--including strong economic growth, low inflation, robust consumer
spending and rising demand for U.S. exports--many investors have become
concerned that inflationary pressures might resurface in the near future. In
fact, in an attempt to forestall a potential reacceleration of inflation, the
Federal Reserve Board (the "Fed") raised interest rates twice during the summer
of 1999.
THE U.S. EQUITY MARKETS WERE CHARACTERIZED BY HIGH LEVELS OF VOLATILITY
PRIMARILY DUE TO CONCERNS REGARDING THE DIRECTION AND MAGNITUDE OF INTEREST RATE
CHANGES. As a result, many investors have continued to favor large, liquid
stocks offering long records of consistent earnings growth. In fact, most of the
small cap stocks that provided attractive returns were highly valued Internet
companies that investors believed had positive future potential but had not yet
turned a profit. In this environment, CitiFunds Small Cap Value Portfolio
maintained its consistent focus on small cap, value-oriented companies that met
its investment criteria. In recognition of investors' preference for large cap
stocks over small cap stocks, the Fund's management carefully and gradually
increased the market capitalization of the Fund's holdings toward the high end
of its range to approximately $1.5 billion. Management has also reduced the
number of individual holdings in the Fund over the past six months, from about
80 at the end of April 1999 to approximately 65 as of October 31, 1999.
2
<PAGE>
By holding fewer companies, management has been able to establish larger
positions in the companies that, in their view, should continue to positively
contribute to the Portfolio's performance. However, management has been careful
to maintain diversification by limiting the holdings of any single industry to
not more than 25% of the Portfolio and any single position to 5% of the
Portfolio at the time of purchase.
The Portfolio's management selects investments through intensive
company-by-company analysis. This bottom-up approach led to changes in certain
sector concentrations during the reporting period. (Bottom-up investment
management de-emphasizes the significance of economic and market cycles and
focuses instead on the analysis of individual stocks.) For example, management
found several attractively valued companies in the financial services industry,
which includes banks, brokerage firms and insurers. Management believes that the
recent repeal of Depression-era laws separating the banking, brokerage and
insurance businesses should create a number of merger and acquisition
opportunities in the financial industry. These proposed actions should, in the
opinion of management, have the greatest impact on life insurance companies
viewed as potential acquisitions by larger and better capitalized financial
institutions.
The Fund's management also increased its holdings in manufacturing
companies during the reporting period. Many of the industrial companies held by
the Fund have excellent fundamentals and strong records of earnings growth.
These securities also have been available at prices that are typically
associated with recessionary conditions, even though there is no recession in
sight.
IN MANAGEMENT'S OPINION, IT IS IMPOSSIBLE TO PREDICT WHEN SMALL CAP VALUE
STOCKS SHOULD RECEIVE GREATER INVESTOR FOCUS. Their view is that patience is the
key to investing in difficult markets such as the small cap value market.
According to management, today's equity markets should be viewed in light of
many of the same factors that characterized the equity market in the early
1970s, when investors focused almost exclusively on the "nifty fifty," a group
of large and highly visible companies. By the late 1970s, however, this select
group of stocks had fallen sharply from their lofty valuations, and many
investors turned their attention to reasonably priced companies with sound
fundamentals.
The Portfolio's management expects heightened market volatility to continue
through the end of 1999. Management believes that investor uncertainty regarding
inflation and interest rates may be compounded by Y2K-related concerns as the
year end approaches. Over the longer term, however, management believes that
many small cap value companies are bargains at current prices. According to
management, when investors once again recognize that the small cap companies in
the Portfolio represent very attractive values, prices should rebound strongly.
3
<PAGE>
FUND FACTS
FUND OBJECTIVE
Long-term capital growth; dividend income, if any, is incidental to this
investment objective.
INVESTMENT MANAGER, DIVIDENDS
Small Cap Value Portfolio Paid semi-annually, if any
Citibank, N.A.
CAPITAL GAINS
PORTFOLIO SUBADVISER Distributed annually, if any
Franklin Advisory Services, LLC
BENCHMARKS
COMMENCEMENT OF OPERATIONS o Lipper Small Cap Funds Average*
March 2, 1998 o Russell 2000(R) Value Index**
NET ASSETS AS OF 10/31/99
Class A shares
$17.7 million
Class B shares
$135,411
* The Lipper Small Cap Funds Average reflects the performance (excluding sales
charges) of mutual funds with similar objectives.
** The Russell 2000(R) Value Index measures the performance of those Russell
2000 companies with lower price to book ratios and lower forecasted growth
values.
4
<PAGE>
PORTFOLIO HIGHLIGHTS
TOP TEN EQUITY HOLDINGS AS OF OCTOBER 31, 1999
COMPANY, INDUSTRY % OF NET ASSETS
JLG Industries Inc., Producer Manufacturing 4.34%
- --------------------------------------------------------------------------------
Timberland Co., Consumer Non-Durables 3.58%
- --------------------------------------------------------------------------------
Presidential Life Corp., Finance 3.56%
- --------------------------------------------------------------------------------
Timken Co., Producer Manufacturing 3.16%
- --------------------------------------------------------------------------------
RPM Inc., Process Industries 2.63%
- --------------------------------------------------------------------------------
Wolverine World Wide Inc., Consumer Non-Durables 2.58%
- --------------------------------------------------------------------------------
Global Industrial Technologies Inc., Producer Manufacturing 2.55%
- --------------------------------------------------------------------------------
Professionals Group Inc., Finance 2.54%
- --------------------------------------------------------------------------------
Fritz Companies Inc., Transportation 2.43%
- --------------------------------------------------------------------------------
Atwood Oceanics Inc., Industrial Services 2.28%
- --------------------------------------------------------------------------------
PORTFOLIO DIVERSIFICATION AS OF OCTOBER 31, 1999
Technical Services 2%
Consumer 14%
Producer Manufacturing 23%
Retail Trade 3%
Process Industries 5%
Non-Energy Minerals 4%
Finance 18%
Commercial Services 1%
Health Technology 2%
Electronic Technology 3%
Energy Minerals 2%
*Short-term 2%
Transportation 12%
Industrial Services 9%
* Includes cash and net other assets
5
<PAGE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
FUND PERFORMANCE
TOTAL RETURNS
SINCE
ONE 3/2/98
ALL PERIODS ENDED OCTOBER 31, 1999 YEAR (INCEPTION)*
================================================================================
CitiFunds Small Cap Value Portfolio (Class A)
without sales charge (4.33)% (20.32)%
Lipper Small Cap Funds Average 25.06% 2.25%+
Russell 2000(R) Value Index 0.72% (8.99)%+
CitiFunds Small Cap Value Portfolio (Class A)
with maximum sales charge of 5.00% (9.11)% (22.73)%
CitiFunds Small Cap Value Portfolio (Class B)
without deferred sales charge -- (8.96)%#**
Lipper Small Cap Funds Average -- 8.25%++**
Russell 2000(R) Value Index -- (4.92)%++**
CitiFunds Small
Cap Value Portfolio (Class B)
with maximum deferred sales charge of 5.00% -- (13.51)%#**
* Average Annual Total Return
** Not Annualized
+ From 2/28/98
++ From 12/31/98
# Commencement of Operations 1/4/99
GROWTH OF A $10,000 INVESTMENT
[The following table represents a chart in the printed material]
<TABLE>
<CAPTION>
DATE CITIFUNDS SMALL CAP VALUE LIPPER SMALL CAP FUNDS AVG. RUSSELL 2000 VALUE INDEX
---- ------------------------- --------------------------- ------------------------
<S> <C> <C> <C>
3/2/98 $9,500 $10,000 $10,000
3/31/98 $9,861 $10,465 $10,406
4/30/98 $9,823 $10,551 $10,457
5/31/98 $9,234 $9,956 $10,086
6/30/98 $8,816 $10,034 $10,030
7/31/98 $7,819 $9,313 $9,245
8/31/98 $6,394 $7,449 $7,797
9/30/98 $6,489 $8,123 $8,237
10/31/98 $6,802 $8,445 $8,482
11/30/98 $6,811 $8,992 $8,712
12/31/98 $7,020 $9,651 $8,985
1/31/99 $6,944 $9,687 $8,782
2/28/99 $6,232 $8,896 $8,182
3/31/99 $6,232 $9,069 $8,115
4/30/99 $6,906 $9,650 $8,856
5/31/99 $7,172 $9,835 $9,127
6/30/99 $7,533 $10,489 $9,458
7/31/99 $7,429 $10,415 $9,234
8/31/99 $7,087 $10,138 $8,896
9/30/99 $6,754 $10,173 $8,718
10/31/99 $6,507 $10,379 $8,543
</TABLE>
A $10,000 investment in the Fund made on inception date would have declined to
$6,507 with sales charge (as of 10/31/99). The graph shows how the Fund compares
to its benchmarks over the same period.
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the other indices) and assumes all dividends and distributions from
the Fund are reinvested at Net Asset Value.
Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures "with sales charge" are provided in accordance with SEC
guidelines for comparative purposes for prospective investors, and reflect
voluntary fee waivers which may be terminated at anytime. If the waivers were
not in place, the Fund's returns would have been lower. The maximum sales charge
of 5.00% went into effect January 4, 1999. Investors may not invest directly in
an index.
6
<PAGE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
================================================================================
ASSETS:
Investment in Small Cap Value Portfolio, at value (Note 1A) $18,181,050
Receivable from Sub-Administrator 57,118
- --------------------------------------------------------------------------------
Total assets 18,238,168
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 403,130
Accrued expenses and other liabilities 37,467
- --------------------------------------------------------------------------------
Total liabilities 440,597
- --------------------------------------------------------------------------------
NET ASSETS $17,797,571
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $34,491,874
Unrealized depreciation (12,270,554)
Accumulated net realized loss (4,423,749)
- --------------------------------------------------------------------------------
Total $17,797,571
================================================================================
COMPUTATION OF
CLASS A SHARES:
Net Asset Value per share ($17,662,160/2,577,385 shares outstanding) $6.85
Offering Price per share ($6.85 / 0.95) $7.21*
================================================================================
CLASS B SHARES:
Net Asset Value per share and offering price
($135,411/19,892 shares outstanding) $6.81**
================================================================================
* Based upon single purchases of less than $25,000.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements
7
<PAGE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
================================================================================
INVESTMENT INCOME (Note 1B):
Dividend Income from Small Cap Value Portfolio $ 280,492
Interest Income from Small Cap Value Portfolio 24,062
Allocated Expenses from Small Cap Value Portfolio (222,935)
- --------------------------------------------------------------------------------
$ 81,619
EXPENSES:
Management fees (Note 2) 64,246
Service fees Class A (Note 3) 64,060
Service fees Class B (Note 3) 744
Transfer agent fees 42,281
Legal fees 32,735
Custody and fund accounting fees 25,184
Registration fees 18,490
Shareholder reports 16,052
Audit fees 14,560
Trustees fees 5,231
Other 868
- --------------------------------------------------------------------------------
Total expenses 284,451
Less expenses assumed by the Sub-Administrator (Note 6) (57,118)
Less aggregate amount waived by the Manager (Note 2) (64,246)
- --------------------------------------------------------------------------------
Net expenses 163,087
- --------------------------------------------------------------------------------
Net investment loss (81,468)
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) FROM
SMALL CAP VALUE PORTFOLIO:
Net realized loss (6,044,888)
Unrealized appreciation 5,143,558
- --------------------------------------------------------------------------------
Net realized and unrealized loss from
Small Cap Value Portfolio (901,330)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(982,798)
================================================================================
See notes to financial statements
8
<PAGE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
MARCH 2, 1998
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, 1999 OCTOBER 31, 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
Net investment loss $ (81,468) $ (112,586)
Net realized gain (loss) (6,044,888) 1,621,139
Unrealized appreciation (depreciation) 5,143,558 (17,414,112)
- --------------------------------------------------------------------------------
Net decrease in net assets
resulting from operations (982,798) (15,905,559)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- --
Net realized gain -- --
- --------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholder -- --
- --------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
CLASS A
Net proceeds from sale of shares 1,707,566 67,749,327
Net asset value of shares issued to shareholders
from reinvestment of distributions -- --
Cost of shares repurchased (16,385,629) (18,531,110)
- --------------------------------------------------------------------------------
Total Class A (14,678,063) 49,218,217
- --------------------------------------------------------------------------------
CLASS B*
Net proceeds from sale of shares 152,569 --
Net asset value of shares issued to shareholders
from reinvestment of distributions -- --
Cost of shares repurchased (6,795) --
- --------------------------------------------------------------------------------
Total Class B 145,774 --
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets from
transactions in shares of beneficial interest (14,532,289) 49,218,217
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (15,515,087) 33,312,658
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 33,312,658 --
- --------------------------------------------------------------------------------
End of period (Including undistributed
net investment income of $0 and $0) $ 17,797,571 $ 33,312,658
================================================================================
* January 4, 1999 (Commencement of Operations) to October 31, 1999.
See notes to financial statements
9
<PAGE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS A
------------------------------
FOR THE PERIOD
MARCH 2, 1998
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
OCTOBER 31, OCTOBER 31,
1999 1998
================================================================================
Net Asset Value, beginning of period $7.16 $10.00
- --------------------------------------------------------------------------------
Income From Operations:
Net investment loss (0.023)+ (0.022)+
Net realized and unrealized loss on investments (0.287) (2.818)
- --------------------------------------------------------------------------------
Total from operations (0.310) (2.840)
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- --
Net realized gain on investments -- --
- --------------------------------------------------------------------------------
Total distributions -- --
- --------------------------------------------------------------------------------
Net Asset Value, end of period $6.85 $ 7.16
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $17,662 $33,313
Ratio of expenses to average net assets (A) 1.50% 1.50%*
Ratio of net investment loss to average net assets (0.31)% (0.39)%*
Total return (4.33)% (28.40)%**
Note: If Agents of the Fund had not voluntarily waived a portion of their fees,
the net investment loss per share and the ratios would have been as follows:
Net investment loss per share ($0.058)+ ($0.036)+
RATIOS:
Expenses to average net assets (A) 1.97% 1.74%*
Net investment loss to average net assets (0.79)% (0.63)%*
================================================================================
* Annualized
** Not Annualized
+ The per share amounts were computed using monthly average of shares during
the period. (A) Includes the Fund's share of Small Cap Value Portfolio
allocated expenses for the period indicated.
See notes to financial statements
10
<PAGE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS B
-----------------
FOR THE PERIOD
JANUARY 4, 1999
(COMMENCEMENT
OF OPERATIONS) TO
OCTOBER 31, 1999
================================================================================
Net Asset Value, beginning of period $7.48
- --------------------------------------------------------------------------------
Income From Operations:
Net investment loss (0.059)+
Net realized and unrealized loss on investments (0.611)
- --------------------------------------------------------------------------------
Total from operations (0.670)
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income --
Net realized gain on investments --
- --------------------------------------------------------------------------------
Total distributions --
- --------------------------------------------------------------------------------
Net Asset Value, end of period $6.81
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $135,411
Ratio of expenses to average net assets (A) 2.25%*
Ratio of net investment loss to average net assets (1.06)%*
Total return (8.96)%**
Note: If Agents of the Fund had not voluntarily waived a portion of their fees,
the net investment loss per share and the ratios would have been as follows:
Net investment loss per share $ (0.094)+
RATIOS:
Expenses to average net assets (A) 2.72%*
Net investment loss to average net assets (1.54)%*
================================================================================
* Annualized
** Not Annualized
+ The per share amounts were computed using monthly average of shares during
the period.
(A) Includes the Fund's share of Small Cap Value Portfolio allocated expenses
for the period indicated.
See notes to financial statements
11
<PAGE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Small Cap Value Portfolio (the
"Fund") is a separate diversified series of CitiFunds Trust II (the "Trust"), a
Massachusetts business trust. The Trust is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company.
The Fund invests all of its investable assets in Small Cap Value Portfolio (the
"Portfolio"), a management investment company for which Citibank, N.A.
("Citibank") serves as Investment Manager. The value of such investment reflects
the Fund's proportionate interest (21.1% at October 31, 1999) in the net assets
of the Portfolio. CFBDS, Inc. ("CFBDS") acts as the Fund's Sub-Administrator and
Distributor.
The Fund offers Class A and Class B shares. The Fund commenced its public
offering of Class B shares on January 4, 1999. Class A shares have a front-end,
or initial sales charge effective January 4, 1999. This sales charge may be
reduced or eliminated in certain circumstances. Class B shares have no front-end
sales charges, pay a higher ongoing distribution fee than Class A and are
subject to a deferred sales charge if sold within five years of purchase. Class
B shares automatically convert into Class A shares after eight years. Expenses
of the Fund are borne pro-rata by the holders of each class of shares, except
that each class bears expenses unique to that class (including the Rule 12b-1
service and distribution fees applicable to such class), and votes as a class
only with respect to its own Rule 12b-1 plan. Shares of each class would receive
their pro-rata share of the assets of the Fund, if the Fund were liquidated.
Class A shares have lower expenses than Class B shares. For the period ended
October 31, 1999, CFBDS, acting as the distributor, received $4,643 from sales
of Class A and $7 in deferred sales charges from redemptions of Class B shares.
The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Fund are
as follows:
A. INVESTMENT VALUATION Valuation of securities by the Portfolio is
discussed in Note 1A of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report.
B. INVESTMENT INCOME The Fund earns income, net of Portfolio expenses,
daily based on its investment in the Portfolio.
C. FEDERAL TAXES The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investment transactions. Accordingly, no provision for federal income or
excise tax is necessary. At October 31, 1999, the Fund, for federal income tax
purposes, had
12
<PAGE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
a capital loss carryover of $17,226,672, of which $7,280,447 will expire on
October 31, 2006 and $9,946,225 will expire on October 31, 2007. Such capital
loss carryover will reduce the Fund's taxable income arising from future net
realized gain on investment transactions, if any, to the extent permitted by the
Internal Revenue Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal income or excise tax.
D. EXPENSES The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with
respect to any two or more funds or series are allocated in proportion to the
average net assets of each fund, except when allocations of direct expenses to
each fund can otherwise be made fairly. Expenses directly attributable to a fund
are charged to that fund. The Fund's share of the Portfolio's expenses are
charged against and reduce the amount of the Fund's investment in the Portfolio.
E. DISTRIBUTIONS Distributions to shareholders are recorded on ex-dividend
date. The amount and character of income and net realized gains to be
distributed are determined in accordance with income tax rules and regulations,
which may differ from generally accepted accounting principles. These
differences are attributable to permanent book and tax accounting differences.
Reclassifications are made to the Fund's capital accounts to reflect income and
net realized gains available for distribution (or available capital loss
carryovers) under income tax rules and regulations. For the year ended October
31, 1999, the Fund reclassified $81,468 to accumulated net investment loss from
paid in capital.
F. OTHER All the net investment income, realized and unrealized gain and
loss of the Portfolio is allocated pro rata, based on respective ownership
interests, among the Fund and the other investors in the Portfolio at the time
of such determination. Investment transactions are accounted for on the trade
date basis. Realized gains and losses are determined on the identified cost
basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the Fund's
business affairs and has a separate Management Agreement with the Fund. Citibank
also provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. CFBDS acts as Sub-Administrator and performs certain
duties and receives compensation from Citibank as from time to time is agreed to
by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of Citicorp, which
in turn, is a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was
formed as a result of the merger of Citicorp and Travelers Group, Inc. which was
completed on October 8, 1998.
The management fees paid to Citibank are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.25% of the Fund's average
daily net assets. The management fee amounted to $64,246 all of which was
voluntarily waived for the year ended October 31, 1999.
The Trust pays no compensation directly to any Trustee or any other officer
who is affiliated with the Sub-Administrator, all of whom receive remuneration
for their services to the Trust from the Sub-Administrator or its affiliates.
13
<PAGE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
3. SERVICE FEES The Fund maintains separate Service Plans for Class A and Class
B shares, which have been adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940, as amended. Under the Class A Service Plan, the
Fund may pay monthly fees at an annual rate not to exceed 0.25% of the average
daily net assets represented by Class A shares of the Fund. The Service fees for
Class A shares amounted to $64,060 for the year ended October 31, 1999. Under
the Class B Service Plan, the Fund may pay a combined monthly distribution and
service fee at an annual rate not to exceed 1.00% of the average daily net
assets represented by Class B shares of the Fund. The Service fees for Class B
shares amounted to $744 for the year ended October 31, 1999. These fees may be
used to make payments to the Distributor for distribution services and to others
as compensation for the sale of shares of the applicable class of the Fund, for
advertising, marketing or other promotional activity, and for preparation,
printing and distribution of prospectuses, statements of additional information
and reports for recipients other than regulators and existing shareholders. The
Fund also may make payments to the Distributor and others for providing personal
service or the maintenance of shareholder accounts.
4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in
the Portfolio for the year ended October 31, 1999 aggregated $1,995,780 and
$16,279,047, respectively.
5. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional shares of beneficial
interest (without par value). Transactions in shares of beneficial interest were
as follows:
FOR THE PERIOD
MARCH 2, 1998
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
OCTOBER 31, TO OCTOBER 31,
1999 1998
================================================================================
CLASS A
Shares sold 234,291 6,804,115
Shares repurchased (2,310,393) (2,150,628)
- --------------------------------------------------------------------------------
Class A net increase (decrease) (2,076,102) 4,653,487
================================================================================
CLASS B*
Shares sold 20,822 --
Shares repurchased (930) --
- --------------------------------------------------------------------------------
Class B net increase 19,892 --
================================================================================
* January 4, 1999 (Commencement of Operations) to October 31, 1999.
6. ASSUMPTION OF EXPENSES CFBDS has voluntarily agreed to pay a portion of the
unwaived expenses of the Fund for the year ended October 31, 1999, which
amounted to $57,118.
14
<PAGE>
CITIFUNDS SMALL CAP VALUE PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE SHAREHOLDERS OF CITIFUNDS TRUST II (THE "TRUST"):
CITIFUNDS SMALL CAP VALUE PORTFOLIO
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of CitiFunds Small Cap Value Portfolio (the "Fund"), a series of
CitiFunds Trust II, at October 31, 1999, the results of its operations, the
changes in its net assets and the financial highlights for the periods indicated
in conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments owned at October 31, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 14, 1999
15
<PAGE>
SMALL CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.6%
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 1.4%
- --------------------------------------------------------------------------------
Reynolds & Reynolds Co. 62,300 $ 1,133,081
------------
CONSUMER DURABLE GOODS -- 2.1%
- --------------------------------------------------------------------------------
D.R. Horton Inc. 60,300 712,294
Engle Homes Inc. 38,100 385,763
Flexsteel Industries Inc. 53,000 702,250
------------
1,800,307
------------
CONSUMER NON-DURABLES -- 10.9%
- --------------------------------------------------------------------------------
Dimon Inc. 135,000 472,500
Scweitzer-Mauduit
International Inc. 13,600 162,350
Sola International Inc.* 60,600 848,400
Standard Commercial Corp. 439,400 1,318,200
Timberland Co.* 61,300 3,026,687
Tropical Sportswear International Corp.* 60,000 1,192,500
Wolverine World Wide Inc. 212,200 2,175,050
------------
9,195,687
------------
CONSUMER SERVICES -- 1.5%
- --------------------------------------------------------------------------------
Aztar Corp.* 129,000 1,249,687
------------
ELECTRONIC TECHNOLOGY -- 2.9%
- --------------------------------------------------------------------------------
Aehr Test Systems* 88,900 405,606
ESCO Electronics Corp.* 76,600 895,263
Spacehab Inc.* 217,400 1,114,175
------------
2,415,044
------------
ENERGY MINERALS -- 1.8%
- --------------------------------------------------------------------------------
Nuevo Energy Co.* 106,800 1,515,225
------------
FINANCE -- 17.6%
- --------------------------------------------------------------------------------
Acceptance Insurance Co.* 67,600 975,975
American National Insurance Co. 27,800 1,904,300
Harleysville Group, Inc. 58,500 998,156
MMI Companies Inc. 99,400 813,837
Matrix Bancorp* 77,800 943,325
PBOC Holdings Inc. *85,000 754,375
PMI Group Inc. 26,250 1,361,719
Penn-America Group Inc. 102,100 740,225
Presidential Life Corp. 163,500 3,004,313
Professionals Group Inc.* 89,200 2,146,375
Seibels Bruce Group Inc.* 44,500 97,344
Stancorp FinancialGroup Inc. 45,000 1,141,875
------------
14,881,819
------------
HEALTH TECHNOLOGY -- 2.1%
- --------------------------------------------------------------------------------
West Pharmaceutical
Services Inc. 52,300 1,807,619
------------
INDUSTRIAL SERVICES-- 8.8%
- --------------------------------------------------------------------------------
Atwood Oceanics Inc.* 66,300 1,926,844
ENSCO International Inc. 72,700 1,408,563
Perini Corp.* 56,400 225,600
R&B Falcon Corp.* 114,640 1,425,835
Rowan Companies Inc.* 107,400 1,671,413
Santa Fe International Corp. 37,000 779,313
------------
7,437,568
------------
NON-ENERGY MINERALS -- 4.0%
- --------------------------------------------------------------------------------
LTV Corp. 399,700 1,448,913
Lone Star Technologies Inc.* 66,300 1,388,156
Southdown Inc. 11,500 555,594
------------
3,392,663
------------
PROCESS INDUSTRIES -- 4.8%
- --------------------------------------------------------------------------------
Lancaster Colony Corp. 37,400 1,306,663
RPM Inc. 186,300 2,223,956
Tuscarora Inc. 41,600 514,800
------------
4,045,419
------------
PRODUCER MANUFACTURING -- 23.5%
- --------------------------------------------------------------------------------
Baldor Electric Co. 86,500 1,681,344
Circor International Inc. 34,650 329,175
Commercial Intertech Corp. 50,800 644,525
Commonwealth Industries Inc. 102,600 1,026,000
Global Industrial Technologies Inc.* 175,500 2,149,875
JLG Industries Inc. 286,000 3,664,375
Kaydon Corp. 28,000 694,750
Keystone Consolidated Industries Inc.* 32,500 162,500
Myers Industries Inc. 102,330 1,439,015
Patrick Industries Inc. 58,700 623,687
Superior Industries International Inc. 69,300 1,849,443
Teleflex Inc. 23,000 783,437
16
<PAGE>
SMALL CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
Timken Co. 148,800 $ 2,669,100
Tower Automotive Inc. 79,000 1,288,687
Watts Industries Inc. 62,400 854,100
------------
19,860,013
------------
RETAIL TRADE -- 3.0%
- --------------------------------------------------------------------------------
Schultz Sav-O Stores Inc. 108,850 1,605,537
Syms Corp.* 163,400 898,700
------------
2,504,237
------------
TECHNOLOGY SERVICES -- 1.5%
- --------------------------------------------------------------------------------
Ultrak Inc.* 232,700 1,294,394
TRANSPORTATION -- 11.7%
- --------------------------------------------------------------------------------
Air Express International Corp. 48,600 1,293,975
Atlantic Coast AirlinesHoldings* 39,200 911,400
Fritz Companies Inc.* 183,400 2,051,788
Kenan Transport Co. 57,100 1,827,200
Midwest Express Holdings Inc.* 56,000 1,641,500
Motor Cargo Industries Inc.* 136,000 824,500
Tidewater Inc. 44,400 1,332,000
------------
9,882,363
------------
TOTAL COMMON STOCKS
(Identified Cost $96,863,565) 82,415,126
------------
SHORT-TERM OBLIGATIONS -- 0.7%
- --------------------------------------------------------------------------------
State Street Bank & Trust
Repurchase Agreement
4.25% due 11/01/99
proceeds at maturity
$594,000 (collateralized by
$600,000 Federal National
Mortgage Association
6.00% due 7/16/01;
valued at $609,120) $ 594,000
------------
TOTAL INVESTMENTS
(Identified Cost
$97,457,565) 98.3% 83,009,126
OTHER ASSETS,
LESS LIABILITIES 1.7 1,418,289
------- ------------
NET ASSETS 100.0% $ 84,427,415
======= ============
* Non-income producing
See notes to financial statements
17
<PAGE>
SMALL CAP VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $97,457,565) $83,009,126
Cash 405
Receivable for investments sold 1,721,713
Dividend and interest receivable 20,597
- --------------------------------------------------------------------------------
Total assets 84,751,841
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 145,298
Payable to affiliates-- Management fees (Note 2) 14,810
Accrued expenses and other liabilities 164,318
- --------------------------------------------------------------------------------
Total liabilities 324,426
- --------------------------------------------------------------------------------
NET ASSETS $84,427,415
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $84,427,415
================================================================================
SMALL CAP VALUE PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
================================================================================
Dividend income $1,428,171
Interest income 120,964
- --------------------------------------------------------------------------------
$1,549,135
EXPENSES:
Management fees (Note 2) 991,045
Custody and fund accounting fees 79,436
Legal fees 29,678
Audit fees 27,890
Trustee fees 6,234
Other 6,505
- --------------------------------------------------------------------------------
Total expenses 1,140,788
- --------------------------------------------------------------------------------
Net investment income 408,347
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Unrealized appreciation of investments 30,267,299
Net realized loss from investment transactions (32,586,180)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments (2,318,881)
- --------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations $(1,910,534)
================================================================================
See notes to financial statements
18
<PAGE>
SMALL CAP VALUE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
NOVEMBER 1, 1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, OCTOBER 31,
1999 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM:
Net investment income $ 408,347 $ 433,451
Net realized gain (loss) on investment
transactions (32,586,180) 12,366,831
Unrealized appreciation (depreciation)
of investments 30,267,299 (75,028,999)
- --------------------------------------------------------------------------------
Net decrease in net assets resulting
from operations (1,910,534) (62,228,717)
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions (Note 1) 11,738,321 434,934,898
Value of withdrawals (96,265,899) (201,840,654)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from capital transactions (84,527,578) 233,094,244
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS: (86,438,112) 170,865,527
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 170,865,527 --
- --------------------------------------------------------------------------------
End of period $ 84,427,415 $170,865,527
================================================================================
SMALL CAP VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
NOVEMBER 1, 1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, OCTOBER 31,
1999 1998
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (000's omitted) $ 84,427 $ 170,866
Ratio of expenses to average net assets 0.86% 0.89%
Ratio of net investment income
to average net assets 0.31% 0.22%
Portfolio turnover 37% 47%
================================================================================
See notes to financial statements
19
<PAGE>
SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES Small Cap Value Portfolio (the "Portfolio"),
a separate series of Asset Allocation Portfolios (the "Portfolio Trust"), is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. The Declaration of Trust permits
the Trustees to issue beneficial interests in the Portfolio. The Investment
Manager of the Portfolio is Citibank N.A., ("Citibank"). Signature Financial
Group (Grand Cayman), Ltd. ("SFG") acts as the Portfolio's Sub-Administrator.
On November 1, 1997, CitiSelect Folio 200, CitiSelect Folio 300, CitiSelect
Folio 400 and CitiSelect Folio 500 each transferred a portion of their
investable assets in the amounts of $16,913,632, $42,092,855, $81,236,129 and
$40,503,947 including $2,712,350, $7,246,592, $14,228,135 and $6,126,184,
respectively, of unrealized appreciation, to the Portfolio in exchange for an
interest in the Portfolio. The total investable assets are included in the
period November 1, 1997 (Commencement of Operations) to October 31, 1998
"Proceeds from contributions" in the Statement of Changes in Net Assets.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. INVESTMENT SECURITY VALUATIONS Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sales prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less) are valued on the basis
of valuations furnished by pricing services approved by the Board of Trustees
which take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, and other market data, without exclusive reliance on quoted prices or
exchange or over-the-counter prices. Short-term obligations, maturing in sixty
days or less, are valued at amortized cost, which constitutes fair value as
determined by the Trustees. Securities, if any, for which there are no such
valuations or quotations are valued at fair value as determined in good faith by
or under guidelines established by the Trustees.
B. INCOME Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for U.S. federal income tax purposes. Dividend income is recorded
on the ex-dividend date.
C. U.S. FEDERAL INCOME TAXES The Portfolio is considered a partnership
under the U.S. Internal Revenue Code. Accordingly, no provision for federal
income taxes is necessary.
20
<PAGE>
SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
D. EXPENSES The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Trust with respect to any two or more portfolios or series are allocated in
proportion to the average net assets of each portfolio, except when allocations
of direct expenses to each portfolio can otherwise be made fairly. Expenses
directly attributable to a portfolio are charged to that portfolio.
E. REPURCHASE AGREEMENTS It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
F. OTHER Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses on investment
transactions are determined on the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub-Administrator and performs certain duties and receives compensation from
Citibank as from time to time are agreed to by Citibank and SFG. Citibank has
delegated the daily management of the Portfolio to Franklin Advisory Services,
LLC ("the Subadviser"). Citibank is a wholly owned subsidiary of Citicorp, which
in turn, is a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was
formed as a result of the merger of Citicorp and Travelers Group, Inc. which was
completed on October 8, 1998.
The management fees paid to Citibank, amounted to $264,279 for the year
ended October 31, 1999. Management fees are computed at the annual rate of 0.75%
of the Portfolio's average daily net assets less the aggregate amount, if any,
payable by the Portfolio pursuant to the Sub-Management Agreement with the
Subadviser. The Portfolio pays the Subadviser the following fees, which are
accrued daily and payable monthly and are at the annual rates equal to the
percentages of the aggregate assets of the Portfolio allocated to the
Subadviser: 0.55% on first $250 million and 0.50% on remaining assets.
The management fees paid to the Subadviser amounted to $726,766 for the
year ended October 31, 1999.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $47,478,723 and $129,005,004,
respectively, for the year ended October 31, 1999.
21
<PAGE>
SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at October 31, 1999,
as computed on a federal income tax basis, are as follows:
Aggregate Cost $ 97,504,346
================================================================================
Gross unrealized appreciation $ 8,659,076
Gross unrealized depreciation (23,154,296)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(14,495,220)
================================================================================
5. LINE OF CREDIT The Portfolio, along with various other portfolios in the
CitiFunds Family, entered into an ongoing agreement with a bank which allows the
Portfolios collectively to borrow up to $75 million for temporary or emergency
purposes. Interest on the borrowings, if any, is charged to the specific
portfolio executing the borrowing at the base rate of the bank. The line of
credit requires a quarterly payment of a commitment fee based on the average
daily unused portion of the line of credit. For the year ended October 31, 1999,
the commitment fee allocated to the Portfolio was $324. Since the line of credit
was established, there have been no borrowings.
22
<PAGE>
SMALL CAP VALUE PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE INVESTORS OF ASSET ALLOCATION PORTFOLIOS (THE "TRUST"),
WITH RESPECT TO ITS SERIES, SMALL CAP VALUE PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Small Cap Value Portfolio (the
"Portfolio"), a series of Asset Allocation Portfolios, as at October 31, 1999,
and the related statements of operations and of changes in net assets and the
financial highlights for the periods indicated. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned as
at October 31, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at October 31, 1999, the
results of its operations and the changes in its net assets and the financial
highlights for the periods indicated, in accordance with U.S. generally accepted
accounting principles.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 1999
23
<PAGE>
This page intentionally left blank.
<PAGE>
TRUSTEES AND OFFICERS
Philip W. Coolidge*, PRESIDENT
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Heath B. McLendon**
C. Oscar Morong Jr.
E. Kirby Warren
William S. Woods Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
* AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR
** AFFILIATED PERSON OF INVESTMENT MANAGER
INVESTMENT MANAGER
(of Small Cap Value Portfolio)
Citibank, N.A.
153 East 53rd Street, New York, NY 10043
DISTRIBUTOR
CFBDS, Inc.
21 Milk Street, 5th Floor
Boston, MA 02109
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street, Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
THE CITIFUNDS FAMILY
LARGE CAP STOCKS
o CitiFunds Growth & Income Portfolio
o CitiFunds Large Cap Growth Portfolio
SMALL CAP STOCKS
o CitiFunds Small Cap Value Portfolio
o CitiFunds Small Cap Growth Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
o CitiFunds International Growth Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds Intermediate Income Portfolio
o CitiFunds National Tax Free Income Portfolio
o CitiFunds California Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
o CitiFunds New York Tax Free Reserves
This report is prepared for the information of shareholders of CitiFunds Growth
& Income Portfolio. It is authorized for distribution to prospective investors
only when preceded or accompanied by an effective prospectus of CitiFunds Growth
& Income Portfolio.
For more information about any of the CitiFunds listed above, ask for a
prospectus (except for CitiFunds Growth & Income Portfolio which preceded or
accompanies this report) containing more complete information, including all
sales charges (if any), fees and expenses. Please read the prospectus carefully
before you invest or send money.
Although each money market fund seeks to maintain the value of your investment
at $1.00 per share, it is possible to lose money by investing in the funds.
Mutual fund shares are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency.
CitiFunds are made available by CFBDS, Inc. as distributor. For more information
contact your Service Agent or call 1-800-625-4554.
(C)1999 Citicorp [LOGO] Printed on recycled paper CFA/SCV/1099
<PAGE>
ANNUAL REPORT o OCTOBER 31, 1999
CITIFUNDS (SM)
Growth & Income Portfolio
- --------------------------------------------------------------------------------
INVESTMENT PRODUCTS:
NOT FDIC INSURED o NO BANK GUARANTEE o MAY LOSE VALUE
- --------------------------------------------------------------------------------
LARGE CAP STOCKS
<PAGE>
TABLE OF CONTENTS
Letter to Our Shareholders 1
- --------------------------------------------------------------------------------
Portfolio Environment and Outlook 2
- --------------------------------------------------------------------------------
Fund Facts 4
- --------------------------------------------------------------------------------
Portfolio Highlights 5
- --------------------------------------------------------------------------------
Fund Performance 6
- --------------------------------------------------------------------------------
CITIFUNDS GROWTH & INCOME PORTFOLIO
Statement of Assets and Liabilities 7
- --------------------------------------------------------------------------------
Statement of Operations 8
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets 9
- --------------------------------------------------------------------------------
Financial Highlights 10
- --------------------------------------------------------------------------------
Notes to Financial Statements 12
- --------------------------------------------------------------------------------
Independent Auditors' Report 15
- --------------------------------------------------------------------------------
LARGE CAP VALUE PORTFOLIO
Portfolio of Investments 16
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities 17
- --------------------------------------------------------------------------------
Statement of Operations 17
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets 18
- --------------------------------------------------------------------------------
Financial Highlights 18
- --------------------------------------------------------------------------------
Notes to Financial Statements 19
- --------------------------------------------------------------------------------
Independent Auditors' Report 22
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO OUR SHAREHOLDERS
Dear CitiFunds Shareholder:
Although the large cap sector of the U.S. stock market produced positive
returns as measured by the Standard & Poor's 500 Index over the 12-month
reporting period ended October 31, 1999, value-oriented stocks did not fare as
well as growth-oriented stocks. In fact, competitive performance in the large
cap sector was primarily limited to the top 25 or so stocks in the S&P 500.
Economic conditions during the reporting period were characterized by strong
growth both in the United States and overseas, leading to higher U.S. interest
rates toward the end of the reporting period. In this environment, investors
focused primarily on growth-oriented technology and Internet stocks and, except
for a brief rally in the second quarter of 1999, stayed away from value-oriented
stocks.
On May 17, 1999, SSB Citi Fund Management LLC (formerly SSBC Fund Management
Inc.) ("SSBC"), a wholly-owned subsidiary of Salomon Smith ~Barney Holdings Inc,
assumed responsibilities as subadviser on CitiFunds Growth & Income Portfolio.
SSBC continued to manage CitiFunds Growth & Income Portfolio with the goal of
achieving its investment objective of providing current income and long-term
capital growth.
The CitiFunds Growth &~Income Portfolio held a Special Meeting of
Shareholders on July 30, 1999, in which shareholders voted to transfer the
assets of Growth &~Income Portfolio, an underlying investment company in which
the Fund invest, to Large Cap Value Portfolio, an underlying investment company
with a similar investment objective; and approve the selection of the Fund's
accountant. All proposals were approved by shareholders. A~detail table
pertaining to the shareholder's votes by proposals appear on page 3 of this
Report.
This report reviews the Portfolio's investment activities and performance
during the 12 months ended October 31, 1999, and provides a summary of the
subadviser's perspective on and outlook for the large cap, value-oriented sector
of the U.S. stock market. On behalf of the Board of Trustees, I want to thank
you for your continued confidence and participation.
Sincerely,
/s/Philip W. Coolidge
- ---------------------
Philip W. Coolidge
President
November 15, 1999
1
<PAGE>
PORTFOLIO ENVIRONMENT AND OUTLOOK
THE 12-MONTH PERIOD ENDED OCTOBER 31, 1999 WAS NOT REWARDING FOR VALUE STOCKS
WHICH LAGGED THE GROWTH SECTOR, A DIRECT BENEFICIARY OF CONTINUED SPECULATION IN
INTERNET STOCKS. (Value investing consists of identifying securities of
companies that are believed to be undervalued but have good longer term business
prospects. Growth investing consists of investing in companies with historically
strong and relatively predictable earnings growth rates.) Because of the
continued weakness of the overall stock market outside of the technology sector,
the differences in valuations between growth and value stocks have widened to
historical proportions. In fact, at current price levels, the Portfolio's
management believes that many value-oriented stocks represent attractive
bargains. While many investors began to recognize these values during a brief
value-stock rally that took place in April and May of 1999, that rally
subsequently gave way to a continuation of investors' narrow focus on a handful
of large, established growth stocks primarily within the technology sector.
Although prevailing economic conditions have generally been positive --
including strong economic growth, low inflation, robust consumer spending and a
rising demand for U.S. exports -- many investors have become concerned that
inflationary pressures might resurface in the near future. In fact, in an
attempt to forestall a potential reacceleration of inflation, the Federal
Reserve Board (the "Fed") raised interest rates twice during the summer of 1999.
As a result, according to the Portfolio's management, investor confusion
regarding the direction and magnitude of inflation and interest rate changes
created high levels of volatility in the markets during that time.
CitiFunds Growth & Income Portfolio maintained its consistent focus on
value-oriented companies that met its investment criteria. The quantitative
component of management's investment process screens for stocks that have market
capitalizations of $5 billion or more, offer above-average dividend yields and
appear to be inexpensively priced according to historical valuation measures.
The Fund's management subjects each stock under consideration to intensive
in-house analytical research that is supported by the insights of other
investment professionals.
Management selects investments through intensive company-by-company
analysis. This bottom-up approach led to changes in certain sector
concentrations during the reporting period. (Bottom-up investment management
de-emphasizes the significance of economic and market cycles and focuses instead
on the analysis of individual stocks.) For example, management found several
attractively valued companies in the energy sector, which includes oil producers
and exploration specialists. After languishing when oil prices fell over the
past several years, these stocks have responded well to rising oil prices in
1999 so far. In addition, the Fund's management thinks that mergers and other
cost-cutting strategies that were implemented when oil prices were low should
help improve these companies' cash flows, much of which may be put to use
through stock buyback programs or corporate acquisitions.
2
<PAGE>
The Portfolio also increased its holdings of insurance companies during the
reporting period. Insurance stocks have been out of favor among investors
because of overcapacity and resulting pricing pressures. Management focused on
those insurance companies that are believed to be most likely to prosper over
the long term as the industry begins to adjust to recent pricing pressures. On
the other hand, management reduced the Portfolio's holdings of health care
stocks after several investments in this area reached what they decided were
fair valuations.
The investment team recently detected encouraging signs that improved stock
market performance may involve more than just a handful of companies.
Management's view is that patience is the key to investing in difficult markets.
Today's equity markets are characterized by many of the same factors that marked
the equity markets in the early 1970s, when investors focused almost exclusively
on the "nifty fifty," a group of large and highly visible companies. By the late
1970s, however, this select group of stocks had fallen sharply from their lofty
valuations, and investors turned their attention to reasonably priced companies
with sound fundamentals. In management's view, history is likely to repeat
itself.
The Fund's management expects heightened market volatility to continue
through the end of 1999. Management also believes that investor uncertainty
regarding inflation and interest rates may be compounded by Y2K-related concerns
as the year ends. However, over the long-term, management remains convinced that
large cap companies in the value sector are bargains at current prices. And
while no guarantees can be given, when current interest rate uncertainty eases
and investors once again recognize that the companies in the Portfolio represent
very attractive values, prices should rebound strongly.
The following is a detail table pertaining to the shareholder vote by proposals
(unaudited).
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
--- ------- -------
1. Transfer the assets to Large Cap
Value Portfolio and dissolution of the
Growth & Income Portfolio 2,780,516 125,779 105,916
2. To vote on the selection of
PricewaterhouseCoopers LLP as
the independent accountants 2,858,852 59,546 93,813
3
<PAGE>
FUND FACTS
FUND OBJECTIVE
Long-term capital growth and current income.
INVESTMENT MANAGER DIVIDENDS
Citibank, N.A. Paid quarterly, if any
COMMENCEMENT OF OPERATIONS CAPITAL GAINS
March 2, 1998 Distributed annually, if any
NET ASSETS AS OF 10/31/99 BENCHMARKS
Class A shares o Standard & Poor's Barra Value Index*
$47.5 million o Lipper Growth & Income
Funds Average**
Class B shares
$867,819
* The Standard & Poor's 500 Index ("S&P 500") is an index of U.S. common
stocks and is used as a gauge of general U.S. stock market performance.
The Standard & Poor's Barra Value Index represents the value stocks in the
S&P 500.
** The Lipper Growth & Income Funds Average reflects the performance (excluding
sales charges) of mutual funds with similar objectives.
4
<PAGE>
PORTFOLIO HIGHLIGHTS
================================================================================
TOP TEN EQUITY HOLDINGS AS OF OCTOBER 31, 1999
COMPANY, INDUSTRY % OF NET ASSETS
Chase Manhattan Bank Corp., Finance 3.69%
- --------------------------------------------------------------------------------
Enron Corp., Utilities 3.53%
- --------------------------------------------------------------------------------
Mobil Corp., Energy 3.50%
- --------------------------------------------------------------------------------
General Electric Co., Capital Goods 3.45%
- --------------------------------------------------------------------------------
Williams Companies Inc., Utilities 3.09%
- --------------------------------------------------------------------------------
Bristol-Myers Squibb Co., Healthcare 3.06%
- --------------------------------------------------------------------------------
American Telephone & Telegraph Corp., Communication
Equipment & Services 3.02%
- --------------------------------------------------------------------------------
American Home Products Corp., Healthcare 3.01%
- --------------------------------------------------------------------------------
Emerson Electronics Co., Capital Goods 2.98%
- --------------------------------------------------------------------------------
Sprint Corp., Communication Equipment & Services 2.83%
- --------------------------------------------------------------------------------
PORTFOLIO DIVERSIFICATION AS OF OCTOBER 31, 1999
[PIE CHART OMITTED]
Transportation 2%
Raw & Intermediate Materials 8%
Short-Term 1%
Finance 18%
Capital Goods 9%
Energy 13%
Consumer 13%
Communication Equipment &
Services 11%
Utilities 12%
Technology 4%
Healthcare 9%
*Includes cash and net other assets
5
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
FUND PERFORMANCE
TOTAL RETURNS
SINCE
ONE 3/2/98
ALL PERIODS ENDED OCTOBER 31, 1999 YEAR (INCEPTION)*
================================================================================
CitiFunds Growth & Income Portfolio (Class A)
without sales charge 14.63% 3.31%
Lipper Growth & Income Funds Average 17.55% 8.76%+
S&P Barra Value Index 19.01% 10.39%+
CitiFunds Growth & Income Portfolio (Class A)
with a maximum sales charge of 5.00% 8.90% 0.18%
CitiFunds Growth & Income Portfolio (Class B)
without deferred sales charge.. -- 6.05%#**
Lipper Growth & Income Funds Average -- 6.83%++**
S&P Barra Value Index -- 9.28%++**
CitiFunds Growth & Income Portfolio (Class B)
with a maximum deferred sales charge of 5.00% -- 0.75%#**
* Average Annual Total Return
** Not Annualized
+ From 2/28/98
++ From 12/31/98
# Commencement of Operations 1/4/99
GROWTH OF A $10,000 INVESTMENT
A $10,000 investment in the Fund made on inception date would have grown $10,029
with sales charge (as of 10/31/99). The graph shows how the Fund compares to its
benchmarks over the same period.
[The following table represents a chart in the printed material]
<TABLE>
<CAPTION>
DATE CITIFUNDS GROWTH & INCOME FUND LIPPER GROWTH & INCOME FUNDS AVG. S&P BARRA VALUE INDEX
---- ------------------------------ --------------------------------- ---------------------
<S> <C> <C> <C>
2/28/98 $10,000 $10,000 $10,000
3/31/98 $9,956 $10,441 $10,507
4/30/98 $9,985 $10,513 $10,631
5/31/98 $9,624 $10,294 $10,481
6/30/98 $9,624 $10,468 $10,561
7/31/98 $9,158 $10,197 $10,327
8/31/98 $7,665 $8,702 $8,667
9/30/98 $7,997 $9,163 $9,195
10/31/98 $8,749 $9,827 $9,915
11/30/98 $9,035 $10,325 $10,432
12/31/98 $9,371 $10,786 $10,798
1/31/99 $9,629 $10,963 $11,016
2/28/99 $9,409 $10,622 $10,779
3/31/99 $9,670 $10,969 $11,106
4/30/99 $10,578 $11,617 $12,063
5/31/99 $10,636 $11,467 $11,850
6/30/99 $10,897 $11,964 $12,305
7/31/99 $10,466 $11,619 $11,927
8/31/99 $10,083 $11,378 $11,623
9/30/99 $9,616 $11,015 $11,168
10/31/99 $10,029 $11,507 $11,799
</TABLE>
The graph includes the initial sales charge on the Fund (no comparable charge
exists for other indices) and assumes all dividends and distributions from the
Fund are reinvested at Net Asset Value.
Notes: All Fund performance numbers represent past performance, and are no
guarantee of future results. The Fund's share price and investment return will
fluctuate, so that the value of an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns include change in
share price and reinvestment of dividends and distributions, if any. Total
return figures are provided in accordance with SEC guidelines for comparative
purposes for prospective investors and reflect certain voluntary fee waivers
which may be terminated at any time. If the waivers were not in place, the
Fund's returns would have been lower. The maximum sales charge of 5.00% went
into effect on January 4, 1999. Investors may not invest directly in an index.
6
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
================================================================================
ASSETS:
Investment in Large Cap Value Portfolio, at value (Note 1A) $48,599,071
Receivable for shares of beneficial interest sold 14,969
Receivable from Sub-Administrator 69,520
- --------------------------------------------------------------------------------
Total assets 48,683,560
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for shares of beneficial interest repurchased 306,762
Accrued expenses and other liabilities 58,100
- --------------------------------------------------------------------------------
Total liabilities 364,862
- --------------------------------------------------------------------------------
NET ASSETS $48,318,698
================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $48,879,929
Unrealized depreciation (567,285)
Accumulated net realized loss (9,529)
Undistributed net investment income 15,583
- --------------------------------------------------------------------------------
Total $48,318,698
================================================================================
COMPUTATION OF
CLASS A SHARES:
Net Asset Value per share ($47,450,879/4,546,358 shares outstanding) $10.44
Offering price per share ($10.44 / 0.95) $10.99*
================================================================================
CLASS B SHARES:
Net Asset Value per share and offering price ($867,819/83,289 shares
outstanding) $10.42
================================================================================
* Based upon single purchases of less than $25,000.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements
7
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
================================================================================
INVESTMENT INCOME (Note 1B):
Dividend Income from Growth & Income Portfolio $857,273
Interest Income from Growth & Income Portfolio 54,936
Allocated Expenses from Growth & Income Portfolio (357,069)
Dividend Income from Large Cap Value Portfolio 261,324
Interest Income from Large Cap Value Portfolio 12,911
Allocated Expenses from Large Cap Value Portfolio (97,049)
- --------------------------------------------------------------------------------
$732,326
EXPENSES:
Service fees Class A (Note 3) 149,839
Service fees Class B (Note 3) 4,595
Management fees (Note 2) 60,395
Legal fees 59,217
Transfer agent fees 50,111
Shareholder reports 32,996
Custody and fund accounting fees 22,803
Audit fees 18,702
Trustees fees 6,701
Other 21,481
- --------------------------------------------------------------------------------
Total expenses 426,840
Less expenses assumed by the Sub-Administrator (Note 6) (69,520)
Less aggregate amounts waived by the Manager (Note 2) (22,833)
- --------------------------------------------------------------------------------
Net expenses 334,487
- --------------------------------------------------------------------------------
Net investment income 397,839
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
Net realized gain from Growth & Income Portfolio 5,002,119
Net realized loss from Large Cap Value Portfolio (659,279)
Unrealized appreciation 4,434,853
- --------------------------------------------------------------------------------
Net realized and unrealized gain from
Growth & Income Portfolio and Large Cap Value Portfolio 8,777,693
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $9,175,532
================================================================================
See notes to financial statements
8
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
MARCH 2, 1998
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, 1999 OCTOBER 31, 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 397,839 $ 327,336
Net realized gain (loss) 4,342,840 (4,352,369)
Unrealized appreciation (depreciation) 4,434,853 (5,002,138)
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 9,175,532 (9,027,171)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income Class A (541,997) (165,417)
In excess of net income Class B (2,178) --
- --------------------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (544,175) (165,417)
- --------------------------------------------------------------------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (Note 5):
CLASS A
Net proceeds from sale of shares 9,244,494 101,995,867
Net asset value of shares issued
to shareholders
from reinvestment of distributions 541,997 165,417
Cost of shares repurchased (41,482,656) (22,508,144)
- --------------------------------------------------------------------------------
Total Class A (31,696,165) 79,653,140
- --------------------------------------------------------------------------------
CLASS B*
Net proceeds from sale of shares 1,089,411 --
Net asset value of shares issued to
shareholders from reinvestment of
distributions 2,100 --
Cost of shares repurchased (168,557) --
- --------------------------------------------------------------------------------
Total Class B 922,954 --
- --------------------------------------------------------------------------------
Net increase (decrease) in net assets
from transactions in shares of
beneficial interest (30,773,211) 79,653,140
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS (22,141,854) 70,460,552
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 70,460,552 --
- --------------------------------------------------------------------------------
End of period (including undistributed
net investment income of $15,583 and
$161,919, respectively) $48,318,698 $70,460,552
================================================================================
* January 4, 1999 (Commencement of Operations) to October 31, 1999.
See notes to financial statements
9
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS A
--------------------------------------------
FOR THE PERIOD
MARCH 2, 1998
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
OCTOBER 31, 1999 OCTOBER 31, 1998
================================================================================
Net Asset Value, beginning of period $9.19 $10.00
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.068+ 0.041
Net realized and unrealized gain (loss)
on investments 1.276 (0.831)
- --------------------------------------------------------------------------------
Total from operations 1.344 (0.790)
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.094) (0.020)
Net realized gain on investments -- --
- --------------------------------------------------------------------------------
Total distributions (0.094) (0.020)
- --------------------------------------------------------------------------------
Net Asset Value, end of period $10.44 $9.19
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $47,451 $70,461
Ratio of expenses to average
net assets (A) 1.30% 1.30%*
Ratio of net investment income to
average net assets 0.67% 0.68%*
Total return 14.63% (7.90)%**
Note: If Agents of the Fund for the periods indicated had not voluntarily waived
a portion of their fees the net investment income per share and the ratios would
have been as follows:
Net investment income per share $0.054+ $0.03
RATIOS:
Expenses to average net assets (A) 1.45% 1.47%*
Net investment income to average
net assets 0.52% 0.51%*
================================================================================
* Annualized.
** Not Annualized
+ The per share amounts were computed using monthly average of shares during
the period.
(A) Includes the Fund's share of Growth & Income Portfolio and Large Cap Value
Portfolio allocated expenses for the periods indicated.
See notes to financial statements
10
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS B
-------------------
JANUARY 4, 1999
(COMMENCEMENT OF
OPERATIONS) TO
OCTOBER 31, 1999
================================================================================
Net Asset Value, beginning of period $9.87
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income (loss) (0.003)+
on investments
Net realized and unrealized gain (loss)
on investments 0.601
- --------------------------------------------------------------------------------
Total from operations 0.598
- --------------------------------------------------------------------------------
Less Distributions From:
In excess of net income (0.048)
Net realized gain on investments --
- --------------------------------------------------------------------------------
Total distributions (0.048)
- --------------------------------------------------------------------------------
Net Asset Value, end of period $10.42
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's omitted) $868
Ratio of expenses to average net assets (A) 2.05%*
Ratio of net investment income to average net assets (0.09)%*
Total return 6.05%**
Note: If Agents of the Fund for the periods indicated had not voluntarily waived
a portion of their fees the net investment income (loss) per share and the
ratios would have been as follows:
Net investment loss per share $(0.019)+
RATIOS:
Expenses to average net assets 2.20%*
Net investment income (loss) to average net assets (0.23)%*
================================================================================
* Annualized.
** Not Annualized.
+ The per share amounts were computed using monthly average of shares during
the period.
(A) Includes the Fund's share of Growth & Income Portfolio and Large Cap Value
Portfolio allocated expenses for the periods indicated.
See notes to financial statements
11
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES CitiFunds Growth & Income Portfolio (the
"Fund") is a separate diversified series of CitiFunds Trust II (the "Trust"), a
Massachusetts business trust. The Fund commenced operations on March 2, 1998.
The Trust is registered under the Investment Company Act of 1940, as amended, as
an open-end, management investment company. The Fund invested all of its
investable assets in Growth & Income Portfolio until July 31, 1999. On August 1,
1999 the Fund invested all of its investable assets in Large Cap Value Portfolio
(the "Portfolio"), a management investment company for which Citibank, N.A.
("Citibank") serves as Investment Manager. The value of such investment reflects
the Fund's proportionate interest (approximately 17.6% at October 31, 1999) in
the net assets of the Portfolio. CFBDS, Inc. ("CFBDS") acts as the Fund's
Sub-Administrator and Distributor.
The Fund offers Class A and Class B shares. The Fund commenced its public
offering of Class B shares on January 4, 1999. Class A shares have a front-end,
or initial sales charge, effective January 4, 1999. This sales charge may be
reduced or eliminated in certain circumstances. Class B shares have no front-end
sales charge, pay a higher ongoing distribution fee than Class A, and are
subject to a deferred sales charge if sold within five years of purchase. Class
B shares automatically convert into Class A shares after eight years. Expenses
of the Fund are borne pro-rata by the holders of each class of shares, except
that each class bears expenses unique to that class (including the Rule 12b-1
service and distribution fees applicable to such class), and votes as a class
only with respect to its own Rule 12b-1 plan. Shares of each class would receive
their pro-rata share of the net assets of the Fund if the Fund were liquidated.
Class A shares have lower expenses than Class B shares. For the period ended
October 31, 1999, CFBDS, acting as the distributor received $25,733 from sales
of Class A and $859 in deferred sales charges from redemptions of Class B
shares.
The financial statements of the Portfolio, including the portfolio of
investments, are contained elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Fund are as
follows:
A. INVESTMENT VALUATION Valuation of securities by the Portfolio is discussed
in Note 1A of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report.
B. INVESTMENT INCOME The Fund earns income, net of Portfolio expenses, daily
based on its investment in the Portfolio.
C. FEDERAL TAXES The Fund's policy is to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute to shareholders all of its taxable income, including any net realized
gain on investment transactions. Accordingly, no provision for federal income or
excise tax is necessary.
12
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
D. EXPENSES The Fund bears all costs of its operations other than expenses
specifically assumed by Citibank and CFBDS. Expenses incurred by the Trust with
respect to any two or more funds or series are allocated in proportion to the
average net assets of each fund, except when allocations of direct expenses to
each fund can otherwise be made fairly. Expenses directly attributable to a fund
are charged to that fund. The Fund's share of the Portfolio's expenses are
charged against and reduce the amount of the Fund's investment in the Portfolio.
E. DISTRIBUTIONS Distributions to shareholders are recorded on ex-dividend
date. The amount and character of income and net realized gains to be
distributed are determined in accordance with income tax rules and regulations,
which may differ from generally accepted accounting principles. These
differences are attributable to permanent book and tax accounting differences.
Reclassifications are made to the Fund's capital accounts to reflect income and
net realized gains available for distribution (or available capital loss
carryovers) under income tax rules and regulations.
F. OTHER All the net investment income, realized and unrealized gain and loss
of the Portfolio is allocated pro rata, based on respective ownership interests,
among the Fund and the other investors in the Portfolio at the time of such
determination. Investment transactions are accounted for on the trade date
basis. Realized gains and losses are determined on the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the Fund's
business affairs and has a Management Agreement with the Fund. Citibank also
provides certain administrative services to the Fund. These administrative
services include providing general office facilities and supervising the overall
administration of the Fund. CFBDS acts as Sub-Administrator and performs certain
duties and receives compensation from Citibank as from time to time is agreed to
by Citibank and CFBDS. Citibank is a wholly-owned subsidiary of Citicorp, which
in turn, is a wholly-owned subsidiary of Citigroup Inc. Citigroup Inc. was
formed as a result of the merger of Citicorp and Travelers Group, Inc. which was
completed on October 8, 1998.
The management fees paid to Citibank are accrued daily and payable monthly.
The management fee is computed at the annual rate of 0.10% of the Fund's average
daily net assets. The management fee amounted to $60,395 of which $22,833 was
voluntarily waived for the year ended October 31, 1999. The Trust pays no
compensation directly to any Trustee or any other officer who is affiliated with
the Sub-Administrator, all of whom receive remuneration for their services to
the Trust from the Sub-Administrator or its affiliates.
3. SERVICE FEES The Fund maintains separate Service Plans for Class A and Class
B shares, which have been adopted in accordance with Rule 12b-1 under the 1940
Act. Under the Class A Service Plan, the Fund may pay monthly fees at an annual
rate not to exceed 0.25% of the average daily net assets represented by Class A
shares of the Fund. The Service fees for Class A shares amounted to $149,839 for
the year ended October 31, 1999. Under the Class B Service Plan,
13
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
the Fund may pay a combined monthly distribution and service fee at an annual
rate not to exceed 1.00% of the average daily net assets represented by Class B
shares of the Fund. The Service fees for Class B shares amounted to $4,595 for
the period ended October 31, 1999. These fees may be used to make payments to
the distributor for distribution services and to others as compensation for the
sale of shares of the applicable class of the Fund, for advertising, marketing
or other promotional activity, and for preparation, printing and distribution of
prospectuses, statements of additional information and reports for recipients
other than regulators and existing shareholders. The Fund may also make payments
to the Distributor and others for providing personal service or the maintenance
of shareholder accounts.
4. INVESTMENT TRANSACTIONS Increases and decreases in the Fund's investment in
Large Cap Value Portfolio for the period from August 1, 1999 through October 31,
1999 aggregated $1,494,740 and $6,987,497, respectively. Increases and decreases
in the Fund's investment in Growth & Income Portfolio for the period from
November 1, 1998 through July 31, 1999 aggregated $2,696,793 and $28,699,584,
respectively.
5. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees
to issue an unlimited number of full and fractional shares of beneficial
interest (without par value). Transactions in shares of beneficial interest were
as follows:
FOR THE PERIOD
MARCH 2, 1998
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, 1999 OCTOBER 31, 1998
================================================================================
CLASS A:
Shares sold 864,186 10,026,741
Shares issued to shareholders from
reinvestment of distributions 52,628 17,590
Shares repurchased (4,036,505) (2,378,282)
- --------------------------------------------------------------------------------
Net increase (decrease) (3,119,691) 7,666,049
================================================================================
CLASS B:*
Shares sold 98,965 --
Shares issued to shareholders from
reinvestment of distributions 194 --
Shares repurchased (15,870) --
- --------------------------------------------------------------------------------
Net increase 83,289 --
================================================================================
* January 4, 1999 (Commencement of Operations) to October 31, 1999.
6. ASSUMPTION OF EXPENSE CFBDS has voluntarily agreed to pay a portion of the
unwaived expenses of the Fund for the year ended October 31, 1999, which
amounted to $69,520.
14
<PAGE>
CITIFUNDS GROWTH & INCOME PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND THE SHAREHOLDERS OF CITIFUNDS TRUST II (THE "TRUST"):
CITIFUNDS GROWTH & INCOME PORTFOLIO
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of CitiFunds Growth & Income Portfolio (the "Fund"), a series of
CitiFunds Trust II, at October 31, 1999, the results of its operations, the
changes in its net assets and the financial highlights for the periods indicated
in conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments owned at October 31, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 14, 1999
15
<PAGE>
LARGE CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS October 31, 1999
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 98.6%
- --------------------------------------------------------------------------------
CAPITAL GOODS -- 9.0%
- --------------------------------------------------------------------------------
Allied Signal, Inc. 35,000 $ 1,992,813
Emerson Electronics Co. 137,000 8,228,563
General Electric Co. 70,200 9,516,488
Honeywell, Inc. 30,000 3,163,125
Raytheon Co. 66,270 1,930,114
------------
24,831,103
------------
COMMUNICATION EQUIPMENT & SERVICES -- 11.1%
- --------------------------------------------------------------------------------
AT&T Corp. 178,000 8,321,500
Bell Atlantic Corp. 73,200 4,753,425
GTE Corp. 30,800 2,310,000
SBC Communications, Inc. 147,060 7,490,869
Sprint Corp. 105,000 7,802,812
------------
30,678,606
------------
CONSUMER CYCLICALS -- 5.9%
- --------------------------------------------------------------------------------
General Motors Corp. 51,000 3,582,750
Masco Corp. 220,000 6,710,000
McGraw Hill Companies, Inc. 100,000 5,962,500
------------
16,255,250
------------
CONSUMER STAPLES -- 7.4%
- --------------------------------------------------------------------------------
Avon Products, Inc. 128,000 4,128,000
Heinz Co. 70,000 3,342,500
Kimberly-Clark Corp. 100,000 6,312,500
PepsiCo, Inc. 191,500 6,642,656
------------
20,425,656
------------
ENERGY -- 12.9%
- --------------------------------------------------------------------------------
BP Amoco Plc, Adr's 124,000 7,161,000
Chevron Corp. 72,000 6,574,500
Conoco Inc. Class a 156,000 4,280,250
Conoco Inc. Class B 129,599 3,515,373
Exxon Corp. 22,800 1,688,625
Halliburton Co. 75,000 2,826,563
Mobil Corp. 100,100 9,659,650
------------
35,705,961
------------
FINANCE -- 18.2%
- --------------------------------------------------------------------------------
Bank of America Corp. 96,600 6,218,625
Chase Manhattan Corp. 116,500 10,179,187
Chubb Corp. 90,000 4,938,750
Cigna Corp. 56,500 4,223,375
Hartford Financial Services Group 113,000 5,854,812
Marsh & McLennan Companies, Inc. 97,500 7,708,594
Mellon Bank Corp. 202,000 7,461,375
UnumProvident Corp. 114,000 3,754,875
------------
50,339,593
------------
HEALTHCARE -- 8.7%
- --------------------------------------------------------------------------------
American Home~Products Corp. 159,000 8,307,750
Bristol-Myers Squibb Co. 110,000 8,449,375
Pharmacia & Upjohn, Inc. 133,500 7,200,656
------------
23,957,781
------------
RAW & INTERMEDIATE MATERIALS -- 7.8%
- --------------------------------------------------------------------------------
Alcoa Inc. 110,500 6,712,875
Dow Chemical Co. 35,200 4,162,400
E. I. du Pont de ~Nemours & Co. 61,568 3,967,288
International Paper Co. 125,000 6,578,125
------------
21,420,688
------------
TECHNOLOGY -- 4.1%
- --------------------------------------------------------------------------------
Pitney Bowes, Inc. 153,000 6,971,062
Xerox Corp. 150,000 4,200,000
------------
11,171,062
------------
TRANSPORTATION -- 1.6%
- --------------------------------------------------------------------------------
Union Pacific Corp. 80,000 4,460,000
------------
UTILITIES -- 11.9%
- --------------------------------------------------------------------------------
Duke Power Co. 136,505 7,712,532
Enron Corp. 244,000 9,744,750
Unicom Corp. 178,000 6,819,625
Williams Companies Inc. 227,000 8,512,500
------------
32,789,407
------------
TOTAL COMMON STOCKS
(Identified Cost
$271,293,544) 272,035,107
------------
SHORT-TERM OBLIGATIONS--1.3%
- --------------------------------------------------------------------------------
State Street Bank & Trust
Repurchase Agreement
4.25% due 11/01/99 proceeds
at maturity $3,509,000
(collateralized by $3,545,000
Federal Home Loan Bank,
5.875% due 8/15/01, valued
at $3,583,995) 3,509,000
------------
TOTAL INVESTMENTS
(Identified Cost
$274,802,544) 99.9% 275,544,107
OTHER ASSETS,
LESS LIABILITIES 0.1 274,981
----- ------------
NET ASSETS 100.0% $275,819,088
===== ============
ADR's - American Depositary Receipts
See notes to financial statements
16
<PAGE>
LARGE CAP VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
================================================================================
ASSETS:
Investments at value (Note 1A) (Identified Cost, $274,802,544) $275,544,107
Cash 419
Receivable for investments sold 880,771
Dividends and interest receivable 414,105
- --------------------------------------------------------------------------------
Total assets 276,839,402
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 703,609
Payable to affiliates--Management fees (Note 2) 138,517
Accrued expenses and other liabilities 178,188
- --------------------------------------------------------------------------------
Total liabilities 1,020,314
- --------------------------------------------------------------------------------
NET ASSETS $275,819,088
================================================================================
REPRESENTED BY:
Paid-in capital for beneficial interests $275,819,088
================================================================================
LARGE CAP VALUE PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
================================================================================
INVESTMENT INCOME: (Note 1B)
Dividend income (net of foreign withholding
tax of ($12,430)) $3,080,160
Interest income 115,972
- --------------------------------------------------------------------------------
$ 3,196,132
EXPENSES:
Management fees (Note 2) 917,653
Custody and fund accounting fees 128,827
Audit fees 44,272
Legal fees 42,905
Trustees fees 4,738
Other 12,034
- --------------------------------------------------------------------------------
Total expenses 1,150,429
- --------------------------------------------------------------------------------
Net investment income 2,045,703
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
on Investments:
Net unrealized appreciation of investments 7,922,939
Less unrealized depreciation from
contributed assets (Note 1) (5,321,898)
- --------------------------------------------------------------------------------
Unrealized appreciation of investments 2,601,041
Net realized loss from investment transactions (9,875,483)
- --------------------------------------------------------------------------------
Net realized and unrealized loss on investments (7,274,442)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(5,228,739)
================================================================================
See notes to financial statements
17
<PAGE>
LARGE CAP VALUE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
NOVEMBER 1, 1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, 1999 OCTOBER 31, 1998
================================================================================
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income $ 2,045,703 $1,551,855
Net realized gain (loss) on
investment transactions (9,875,483) 8,655,223
Unrealized appreciation
(depreciation) of investments 2,601,041 (18,203,522)
- --------------------------------------------------------------------------------
Net decrease in net assets resulting
from operations (5,228,739) (7,996,444)
- --------------------------------------------------------------------------------
CAPITAL TRANSACTIONS:
Proceeds from contributions (Note 1) 249,127,874 279,612,949
Value of withdrawals (97,340,274) (142,356,278)
- --------------------------------------------------------------------------------
Net increase in net assets
from capital transactions 151,787,600 137,256,671
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS: 146,558,861 129,260,227
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of period 129,260,227 --
- --------------------------------------------------------------------------------
End of period $275,819,088 $129,260,227
================================================================================
LARGE CAP VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
NOVEMBER 1, 1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
OCTOBER 31, 1999 OCTOBER 31, 1998
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's omitted) $275,819 $129,260
Ratio of expenses to average net assets 0.75% 0.78%
Ratio of net investment income to
average net assets 1.34% 1.20%
Portfolio turnover 74% 61%
================================================================================
See notes to financial statements
18
<PAGE>
LARGE CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES Large Cap Value Portfolio (the "Portfolio"),
a separate series of Asset Allocation Portfolios (the "Trust"), is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Declaration of Trust permits the Trustees to issue
beneficial interests in the Portfolio. The Investment Manager of the Portfolio
is Citibank, N.A. ("Citibank"). Signature Financial Group (Grand Cayman), Ltd.
("SFG") acts as the Portfolio's Sub-Administrator.
On November 1, 1997 (Commencement of Operations) CitiSelect Folio 200,
CitiSelect Folio 300, CitiSelect Folio 400 and CitiSelect Folio 500 transferred
a portion of their investable assets in the amounts of $12,341,545, $34,373,886,
$39,082,974 and $16,297,323 including $1,229,530, $3,795,385, $4,553,306 and
$1,443,925, respectively, of unrealized appreciation to the Portfolio in
exchange for an interest in the Portfolio. The total investable assets and
contributions are included in the November 1, 1997 (Commencement of Operations)
to October 31, 1998 "Proceeds from contributions" on the Statement of Changes in
Net Assets.
On August 1, 1999, Growth & Income Portfolio and Balanced Portfolio
transferred all or a portion of their investable assets in the amounts of
$83,477,271 and $142,169,402 including $783,244 and $4,538,654, respectively, of
unrealized appreciation to the Portfolio in exchange for an interest in the
Portfolio. The total investable assets and contributions are included in the
Year Ended October 31, 1999 "Proceeds from contributions" in the Statement of
Changes in Net Assets. The preparation of financial statements in accordance
with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
The significant accounting policies consistently followed by the Portfolio
are as follows:
A. INVESTMENT SECURITY VALUATIONS Equity securities listed on securities
exchanges or reported through the NASDAQ system are valued at last sale prices.
Unlisted securities or listed securities for which last sale price are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations maturing in sixty days or less), are valued on the basis
of valuations furnished by pricing services approved by the Board of Trustees
which take into account appropriate factors such as institutional-size trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, and other market data, without exclusive reliance on quoted prices or
exchange or over-the-counter prices. Short-term obligations, maturing in sixty
days or less, are valued at amortized cost, which constitutes fair value as
determined by the Trustees. Securities, if any, for which there are no such
valuations or quotations are valued at fair value as determined in good faith by
or under guidelines established by the Trustees.
19
<PAGE>
LARGE CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (Continued)
B. INCOME Interest income consists of interest accrued and discount earned,
adjusted for amortization of premium or discount on long-term debt securities
when required for U.S. federal income tax purposes. Dividend income is recorded
on the ex-dividend date.
C. U.S. FEDERAL INCOME TAXES The Portfolio is considered a partnership
under the U.S. Internal Revenue Code. Accordingly, no provision for federal
income taxes is necessary.
D. REPURCHASE AGREEMENTS It is the policy of the Portfolio to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the custodian bank's
vault, all securities held as collateral in support of repurchase agreements.
Additionally, procedures have been established by the Portfolio to monitor, on a
daily basis, the market value of the repurchase agreement's underlying
investments to ensure the existence of a proper level of collateral.
E. EXPENSES The Portfolio bears all costs of its operations other than
expenses specifically assumed by Citibank and SFG. Expenses incurred by the
Trust with respect to any two or more portfolios or series are allocated in
proportion to the average net assets of each portfolio, except when allocations
of direct expenses to each portfolio can otherwise be made fairly. Expenses
directly attributable to a portfolio are charged to that portfolio.
F. OTHER Investment transactions are accounted for on the date the
investments are purchased or sold. Realized gains and losses on investment
transactions are determined on the identified cost basis.
2. MANAGEMENT FEES Citibank is responsible for overall management of the
Portfolio's business affairs, and has a separate Management Agreement with the
Portfolio. Citibank also provides certain administrative services to the
Portfolio. These administrative services include providing general office
facilities and supervising the overall administration of the Portfolio. SFG acts
as Sub-Administrator and performs certain duties and receives compensation from
Citibank as from time to time are agreed to by Citibank and SFG. Citibank had
delegated the daily management of the Portfolio to Miller Anderson & Sherrerd
LLP, but effective January 22, 1999 Citibank delegated the daily management of
the Portfolio to SSB~Citi Fund Management LLC (formerly SSBC Fund Management,
Inc.), (the "Subadviser"), an affiliate of Citibank. Citibank is a wholly-owned
subsidiary of Citicorp, which in turn, is a wholly-owned subsidiary of Citigroup
Inc. Citigroup Inc. was formed as a result of the merger of Citicorp and
Travelers Group, Inc., which was completed on October 8, 1998.
The management fees paid to Citibank amounted to $380,698 for the year ended
October 31, 1999. Citibank management fees are computed at the annual rate of
0.60% of the Portfolio's average daily net assets less the aggregate amount
payable by the Portfolio's Trust pursuant to the Sub-Management Agreement with
20
<PAGE>
LARGE CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
the Subadviser. The Portfolio pays the Subadviser the following fee, which is
accrued daily and payable monthly and is at the annual rates equal to the
percentages of the aggregate assets of the Portfolio allocated to the
Subadvisers. Miller Anderson & Sherrerd LLP fee structure was: 0.625% on the
first $25 million; 0.375% on the next $75 million; 0.250% on the next $400
million; and 0.20% on assets in excess of $500 million, and for SSB Citi Fund
Management LLC, the fee structure is: 0.65% on the first $10 million; 0.50% on
the next $10 million; 0.40% on the next $10 million; and 0.30% on assets in
excess of $30 million. The fees paid to the Subadvisers amounted to $536,955 of
which $116,277 was paid to Miller Anderson & Sherrerd LLP and $420,678 to SSB
Citi Fund Management LLC for the year ended October 31, 1999.
The Trust pays no compensation directly to any Trusteee or any other
officer who is affiliated with the Sub-Administrator, all of whom receive
remuneration for their services to the Trust from the Sub-Administrator or its
affiliates.
3. PURCHASES AND SALES OF INVESTMENTS Purchases and sales of investments, other
than short-term obligations, aggregated $105,045,056 and $173,633,335,
respectively, for the year ended October 31, 1999.
4. FEDERAL INCOME TAX BASIS OF INVESTMENTS The cost and unrealized appreciation
(depreciation) in value of the investment securities owned at October 31, 1999,
as computed on a federal income tax basis, are as follows:
Aggregate cost $274,962,340
================================================================================
Gross unrealized appreciation $ 21,635,516
Gross unrealized depreciation (21,053,749)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 581,767
================================================================================
5. LINE OF CREDIT The Portfolio, along with various other portfolios in the
CitiFunds Family, entered into an ongoing agreement with a bank which allows the
Portfolios collectively to borrow up to $75 million for temporary or emergency
purposes. Interest on the borrowings, if any, is charged to the specific
portfolio executing the borrowing at the base rate of the bank. The line of
credit requires a quarterly payment of a commitment fee based on the average
daily unused portion of the line of credit. For the year ended October 31, 1999,
the commitment fee allocated to the Portfolio was $391. Since the line of credit
was established, there have been no borrowings.
21
<PAGE>
LARGE CAP VALUE PORTFOLIO
INDEPENDENT AUDITORS' REPORT
TO THE TRUSTEES AND INVESTORS OF ASSET ALLOCATION PORTFOLIOS (THE "TRUST"), WITH
RESPECT TO ITS SERIES, LARGE CAP VALUE PORTFOLIO:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Large Cap Value Portfolio (the
"Portfolio"), a series of Asset Allocation Portfolios, as at October 31, 1999,
and the related statements of operations and of changes in net assets and the
financial highlights for the periods indicated. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
mis-statement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned as
at October 31, 1999 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Portfolio as at October 31, 1999, the
results of its operations and the changes in its net assets and the financial
highlights ~for the periods indicated in accordance with U.S. generally accepted
accounting principles.
PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario
December 14, 1999
22
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<PAGE>
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<PAGE>
TRUSTEES AND OFFICERS
Philip W. Coolidge*, PRESIDENT
Riley C. Gilley
Diana R. Harrington
Susan B. Kerley
Heath B. McLendon**
C. Oscar Morong Jr.
E. Kirby Warren
William S. Woods Jr.
SECRETARY
Linda T. Gibson*
TREASURER
John R. Elder*
*AFFILIATED PERSON OF SUB-ADMINISTRATOR AND DISTRIBUTOR
**AFFILIATED PERSON OF INVESTMENT MANAGER
INVESTMENT MANAGER
Citibank, N.A.
153 East 53rd Street,
New York, NY 10043
DISTRIBUTOR
CFBDS, Inc.
21 Milk Street, 5th Floor,
Boston, MA 02109
(617) 423-1679
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street,~Boston, MA 02110
LEGAL COUNSEL
Bingham Dana LLP
150 Federal Street, Boston, MA 02110
<PAGE>
THE CITIFUNDS FAMILY
LARGE CAP STOCKS
o CitiFunds Growth & Income Portfolio
o CitiFunds Large Cap Growth Portfolio
SMALL CAP STOCKS
o CitiFunds Small Cap Value Portfolio
o CitiFunds Small Cap Growth Portfolio
INTERNATIONAL STOCKS
o CitiFunds International Growth & Income Portfolio
o CitiFunds International Growth Portfolio
GROWTH WITH INCOME
o CitiFunds Balanced Portfolio
BONDS
o CitiFunds Short-Term U.S. Government Income Portfolio
o CitiFunds Intermediate Income Portfolio
o CitiFunds National Tax Free Income Portfolio
o CitiFunds California Tax Free Income Portfolio
o CitiFunds New York Tax Free Income Portfolio
MONEY MARKETS
o CitiFunds Cash Reserves
o CitiFunds U.S. Treasury Reserves
o CitiFunds Tax Free Reserves
o CitiFunds California Tax Free Reserves
o CitiFunds Connecticut Tax Free Reserves
o CitiFunds New York Tax Free Reserves
This report is prepared for the information of shareholders of CitiFunds Growth
& Income Portfolio. It is authorized for distribution to prospective investors
only when preceded or accompanied by an effective prospectus of CitiFunds Growth
& Income Portfolio.
For more information about any of the CitiFunds listed above, ask for a
prospectus (except for CitiFunds Growth & Income Portfolio which preceded or
accompanies this report) containing more complete information, including all
sales charges (if any), fees and expenses. Please read the prospectus carefully
before you invest or send money.
Although each money market fund seeks to maintain the value of your investment
at $1.00 per share, it is possible to lose money by investing in the funds.
Mutual fund shares are not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency.
CitiFunds are made available by CFBDS, Inc. as distributor. For more information
contact your Service Agent or call 1-800-625-4554.
(C)1999 Citicorp [LOGO] Printed on recycled paper CFA/GI/1099
